{"id":4266,"date":"2021-08-31T16:23:58","date_gmt":"2021-08-31T10:53:58","guid":{"rendered":"https:\/\/www.tickertape.in\/blog\/?p=4266"},"modified":"2022-05-24T15:04:14","modified_gmt":"2022-05-24T09:34:14","slug":"assets-under-calculation","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/assets-under-calculation\/","title":{"rendered":"AUM (Assets Under Management) \u2013 Meaning, Impact, Factors and Calculation"},"content":{"rendered":"\n<p>There are different <a href=\"https:\/\/www.tickertape.in\/blog\/types-of-investment\/\">types of investment<\/a> avenues that pool the investments of different investors and then <a href=\"https:\/\/www.tickertape.in\/blog\/why-should-you-prioritise-investing\/\">invest<\/a> the pooled money into various securities. Hedge funds, insurance companies, <a href=\"https:\/\/www.tickertape.in\/blog\/types-of-mutual-funds-a-quick-overview\/?utm_source=blog&amp;utm_medium=article\">mutual funds<\/a> and <a href=\"https:\/\/www.tickertape.in\/blog\/exchange-traded-funds\/?utm_source=blog&amp;utm_medium=article\">Exchange Traded Funds<\/a> (ETFs) are some of the popular investment avenues where a fund manager pools money from all investors in the product and makes investments in carefully picked out assets for maximizing returns.&nbsp;<\/p>\n\n\n\n<p>The pooled investments create a diversified portfolio and when assessing the value of this portfolio, the concept of AUM is used. In this article, we dive deep into what AUM is and its importance.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/assets-under-calculation\/#What-is-AUM\" title=\"What is AUM?\">What is AUM?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/assets-under-calculation\/#Calculation-of-AUM\" title=\"Calculation of AUM\">Calculation of AUM<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/assets-under-calculation\/#Importance-of-AUM\" title=\"Importance of AUM\">Importance of AUM<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/assets-under-calculation\/#AUM-in-mutual-fund\" title=\"AUM in mutual fund\">AUM in mutual fund<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.tickertape.in\/blog\/assets-under-calculation\/#Factors-influencing-the-AUM\" title=\"Factors influencing the AUM\">Factors influencing the AUM<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.tickertape.in\/blog\/assets-under-calculation\/#Inflows-and-outflows\" title=\"Inflows and outflows\">Inflows and outflows<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.tickertape.in\/blog\/assets-under-calculation\/#The-market-value-of-underlying-assets\" title=\"The market value of underlying assets\">The market value of underlying assets<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.tickertape.in\/blog\/assets-under-calculation\/#Dividend-policy\" title=\"Dividend policy\">Dividend policy<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.tickertape.in\/blog\/assets-under-calculation\/#Market-volatility\" title=\"Market volatility\">Market volatility<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\" id=\"what\"><span class=\"ez-toc-section\" id=\"What-is-AUM\"><\/span>What is AUM?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The AUM full form is Assets Under Management. It represents the total <a href=\"https:\/\/www.tickertape.in\/blog\/market-value\/\">market value<\/a> of the portfolio that is created using the pooled investments. In other words, the value that the market decides based on the demand and supply of the assets being managed by an entity or fund is collectively called the Assets Under Management or AUM.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"calculation\"><span class=\"ez-toc-section\" id=\"Calculation-of-AUM\"><\/span>Calculation of AUM<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As easy as it is to understand the AUM meaning, its calculation is mildly complex. The calculation of AUM does not follow a standard formula. It varies across funds and financial institutions. The most common method to calculate the AUM is by using the following values:<\/p>\n\n\n\n<ul><li>The market value of the underlying assets on a particular date<\/li><li>The returns generated by selling off a part of the assets<\/li><li>The redemptions from the portfolio<\/li><li>Investments into the portfolio<\/li><li><a href=\"https:\/\/www.tickertape.in\/blog\/cash-dividend-vs-stock-dividend\/\">Dividend<\/a> paid out<\/li><\/ul>\n\n\n\n<p>Using these factors, the AUM is calculated as follows:<\/p>\n\n\n\n<p><strong>AUM = market value + returns earned from selling assets + inflows into the fund &#8211; redemptions &#8211; <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-dividend\/\">dividend<\/a> payments<\/strong><\/p>\n\n\n\n<p>For example, say 100 investors invest Rs 1 lakh each in a fund creating a corpus of Rs 1 cr. The corpus is allocated 40% in security A, 40% in security B, and 20% in security C. After the end of the year, the fund stands as follows:<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Securities&nbsp;<\/strong><\/td><td><strong>Invested amount<\/strong><\/td><td><strong>Current market value<\/strong><\/td><\/tr><tr><td>A<\/td><td>Rs 40 lakh<\/td><td>Rs 48 lakh<\/td><\/tr><tr><td>B<\/td><td>Rs 40 lakh<\/td><td>Rs 42 lakh<\/td><\/tr><tr><td>C<\/td><td>Rs 20 lakh<\/td><td>Rs 21 lakh<\/td><\/tr><tr><td>The total value of the portfolio<\/td><td><\/td><td>Rs 1.11 cr<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>If we consider that no new investments were made, no dividends were paid, and <em>there was a redemption of Rs 1 lakh <\/em>from the fund, the AUM becomes Rs 1.10 cr.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"importance\"><span class=\"ez-toc-section\" id=\"Importance-of-AUM\"><\/span>Importance of AUM<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The calculation and assessment of the fund\u2019s AUM are important both for the company managing the funds as well as for its investors. Here are some reasons why:<\/p>\n\n\n\n<ul><li>The size of the AUM depicts the overall size of the fund and its customer base. The larger the AUM, the more the number of customers who have invested in the fund (alternatively, it could mean more money is invested in the fund). Moreover, a larger AUM also indicates that investors trust the fund for their investment goals.<\/li><li>The size of the AUM also shows how successfully the fund is being managed. The fund manager buys and sells the securities in the portfolio to generate returns. If the portfolio has generated considerable returns, it would be evident in the AUM as returns boost the value of the same.<\/li><li>If you compare the AUMs across different time periods, you can check whether the fund is growing or contracting. If the AUM is steadily increasing y-o-y, it is a positive sign as it indicates the possible addition of new investors and\/or positive returns. On the other hand, if the AUM is contracting, it might signal that the fund is not performing as expected and investors might be cashing out or the fund might be incurring losses.<\/li><li>The AUM is also used as a metric for measuring the success of the financial institution or the overall fund. Institutions with higher AUMs are viewed favourably compared to those which manage a smaller AUM. The size of the AUM also determines the compensation or pay package of the fund managers managing it.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"AUM\"><span class=\"ez-toc-section\" id=\"AUM-in-mutual-fund\"><\/span>AUM in mutual fund<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The most common use of the concept of AUM is seen in the case of <a href=\"https:\/\/www.tickertape.in\/blog\/how-to-invest-in-mutual-funds\/?utm_source=blog&amp;utm_medium=article\">mutual funds<\/a>. AUM in a mutual fund is used to denote the value of the portfolio of a particular mutual fund scheme. Alternatively, the aggregate value of AUMs of all the mutual fund schemes can be used to calculate the AUM of the mutual fund house on the whole.<\/p>\n\n\n\n<p>The concept of AUM in a mutual fund is used to determine the maximum Total <a href=\"https:\/\/www.tickertape.in\/blog\/information-on-expense-ratio\/\">Expense Ratio<\/a> (TER) that the fund can charge. The <a href=\"https:\/\/www.tickertape.in\/blog\/securities-and-exchange-board-of-india-functions-powers-and-regulations-of-sebi\/?utm_source=blog&amp;utm_medium=article\">Securities and Exchange Board of India<\/a> (<a href=\"https:\/\/www.tickertape.in\/blog\/securities-and-exchange-board-of-india-functions-powers-and-regulations-of-sebi\/\">SEBI<\/a>) has stipulated the maximum levels of TER based on the AUM of the mutual fund. It is as follows:<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>AUM level (in Rs crore)<\/strong><\/td><td><strong>TER in <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-equity\/\">equity<\/a> schemes<\/strong><\/td><td><strong>TER in non-equity schemes<\/strong><\/td><\/tr><tr><td>Up to 500<\/td><td>2.25%<\/td><td>2%<\/td><\/tr><tr><td>500 &#8211; 750<\/td><td>2%<\/td><td>1.75%<\/td><\/tr><tr><td>750 &#8211; 2000<\/td><td>1.75%<\/td><td>1.50%<\/td><\/tr><tr><td>2000 &#8211; 5000<\/td><td>1.60%<\/td><td>1.35%<\/td><\/tr><tr><td>5000 &#8211; 10,000<\/td><td>1.50%<\/td><td>1.25%<\/td><\/tr><tr><td>10,000 &#8211; 50,000<\/td><td>The TER would reduce by 0.05% for every Rs.5000 crore increase in the AUM<\/td><\/tr><tr><td>More than 50,000<\/td><td>1.05%<\/td><td>0.80%<\/td><\/tr><\/tbody><\/table><figcaption>SEBI<\/figcaption><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"factors\"><span class=\"ez-toc-section\" id=\"Factors-influencing-the-AUM\"><\/span>Factors influencing the AUM<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The factors that cause a change in the AUM are as follows:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Inflows-and-outflows\"><\/span>Inflows and outflows<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Investments in and redemptions from the fund affect the AUM. Investments or inflows increase the AUM, and redemptions or outflows decrease it.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The-market-value-of-underlying-assets\"><\/span>The market value of underlying assets<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The AUM changes with a change in the market value of the fund\u2019s underlying assets. If the markets are performing well, the market value of the assets may rise and then, so does the AUM. The opposite is true when the market is in a downtrend.<\/p>\n\n\n<span class='bctt-click-to-tweet'><span class='bctt-ctt-text'><a href='https:\/\/twitter.com\/intent\/tweet?url=https%3A%2F%2Fwww.tickertape.in%2Fblog%2Fassets-under-calculation%2F&#038;text=If%20the%20market%20is%20volatile%20and%20the%20fund%20has%20volatile%20assets%2C%20then%20the%20Assets%20Under%20Management%20would%20also%20be%20volatile%20and%20is%20prone%20to%20change%20constantly.&#038;via=TickertapeIN&#038;related=TickertapeIN' target='_blank'rel=\"noopener noreferrer\">If the market is volatile and the fund has volatile assets, then the Assets Under Management would also be volatile and is prone to change constantly. <\/a><\/span><a href='https:\/\/twitter.com\/intent\/tweet?url=https%3A%2F%2Fwww.tickertape.in%2Fblog%2Fassets-under-calculation%2F&#038;text=If%20the%20market%20is%20volatile%20and%20the%20fund%20has%20volatile%20assets%2C%20then%20the%20Assets%20Under%20Management%20would%20also%20be%20volatile%20and%20is%20prone%20to%20change%20constantly.&#038;via=TickertapeIN&#038;related=TickertapeIN' target='_blank' class='bctt-ctt-btn'rel=\"noopener noreferrer\">Click To Tweet<\/a><\/span>\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Dividend-policy\"><\/span>Dividend policy<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>If the AUM pays out dividends to its investors, its value would reduce. On the other hand, if the dividends are reinvested, the value would increase.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Market-volatility\"><\/span>Market volatility<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><a href=\"https:\/\/www.tickertape.in\/blog\/strategies-to-tackle-volatility\/\">Market volatility<\/a> impacts the value of the AUM if the fund has been invested in securities that are exposed to such volatilities. If the fund has volatile assets and the markets are volatile, the AUM would also be volatile and would change constantly.<\/p>\n\n\n\n<p>If you are investing in a pooled avenue, like a <a href=\"https:\/\/www.tickertape.in\/blog\/mutual-funds\/?utm_source=blog&amp;utm_medium=article\">mutual fund<\/a> scheme, understand what is AUM. While it may not be the right criteria to use when selecting your fund, it does give some sense of the sentiment of other investors towards the fund. Compare the AUM over the past years as well as with the AUMs of similar schemes. Try and invest in a scheme whose AUM has been increasing steadily and which is higher than its peers. Also consider the historic returns and other aspects of the scheme along with its AUM, to invest with an overall knowledge of the instrument.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Want to know what is AUM in mutual funds? Click here to read definition, benefits of AUM and find out how to calculate asset under management using its formula!<\/p>\n","protected":false},"author":45,"featured_media":4268,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"no","footnotes":""},"categories":[8],"tags":[659,656,657,661,658,660],"acf":[],"modified_by":"Aradhana Gotur","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2021\/08\/Informative-2-4.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/4266"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/45"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=4266"}],"version-history":[{"count":3,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/4266\/revisions"}],"predecessor-version":[{"id":8676,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/4266\/revisions\/8676"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/4268"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=4266"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=4266"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=4266"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}