How important is AUM factor in Mutual Fund Analysis?

asset under management of small cap funds

How important is AUM factor in Mutual Fund Analysis?

What is AUM of a fund?

Assets under management are the overall market value of assets/capital that a mutual fund holds. The fund manager manages these assets and takes investment decisions on behalf of investors. AUM is an indicator of the size and success of a fund house. One can easily compare its assets under management in various timelines and market phases performed as opposed to its peers. The AUM-value also includes the returns that a mutual fund earns. The asset manager can invest this in securities, distribute to investors as dividends or hold as per the investment mandate.

We will look at Asset under Management perspective while analyzing mutual funds. For this the type of mutual fund should be taken into consideration. Whether it is a large cap fund or mid cap fund or multi cap fund or small cap fund? Whether it is a balanced fund or hybrid kind of fund? Type of fund under analysis matters a lot.

Let’s dissect the importance of AUM with respect to different fund types.

1. Debt funds

AUM is a crucial factor to consider if you are planning to invest in debt funds. A debt fund with more capital under it can spread the fixed fund expenses across the number of investors. This can reduce the expense ratio per person and hence increase the fund returns. More assets under the fund also help the fund company to negotiate reasonable rates with debt issuers.

2. Equity Funds

Here, consistency in returns and compliance of the fund house with the investment mandate matters more than AUM. By consistency, we mean beating the benchmark throughout market highs and lows. Hence, an equity fund runs on the asset manager’s skill to generate good returns consistently rather than popularity or size.

a. Large Cap Funds

Universe of large cap fund is comparatively high. Though there are only 100 companies in the scope of large cap funds, still these 100 companies have high amount of liquidity. Therefore, a large cap fund can accommodate a high AUM.

b. Mid cap funds

As compared to large cap fund, the AUM capacity of mid cap fund is lower. According to market capitalization, midcap companies are from 101 to 250.
Large cap, mid cap, even multi cap funds can accommodate high AUMs, but small cap funds prefer lower AUM.  Even fund managers of small cap fund want the low AUM.

c. small cap funds

250+ companies are available for small cap for investment. Smaller companies have comparatively lower liquidity. Here, lower liquidity implies that if that particular fund wants to sell the stock in the market, but there is no buyer available in the market for the same quantity then it will invite problems in case of small cap funds. Hence, Small cap funds tend to restrict cash influx after a certain point. DSP Small Cap Fund is a widely known example for this. This usually occurs when the assets under mutual fund grow beyond a point. If the fund becomes a major shareholder in a company, it may not be able to trade its shares easily when the market fluctuates. This is why a small-cap fund often avoids lumpsum investments and stick to SIPs.

DSP small cap fund and SBI small cap fund have restricted cash influx after a certain point. SBI small cap fund have imposed the restrictions on inflow of new assets after crossing Rs. 600 Cr AMU. Similarly, DSP small cap fund have stopped the new inflows after crossing its AUM between Rs. 3000Cr- Rs.4000 Cr. These two funds are currently accepting the cash influx through SIPs. Thus, AUM can become an important factor in the analysis depending on the category of fund you are investing.

Example: AUM Analysis of Small Cap Funds

Small Cap Funds with AUM and % Growth in AUM
Small Cap Funds with AUM and % Growth in AUM
  • Reliance Small Cap Fund is the biggest fund by AUM. Franklin Small Cap Fund and HDFC Small Cap Fund have comparatively lower AUM than Reliance Small Cap Fund.
  • Here, while performing the AUM analysis, the individual fund is compared with the AUM and % AUM growth of the Category Average.
  • 20% growth in AUM from last year is there in case of Aditya Birla SL Small Cap Fund. Actually, market has given negative returns in last one year, still a positive growth in AUM is seen for Aditya Birla SL Small Cap Fund because of fresh inflows in the fund.
  •  In case of DSP small cap fund, 29% decrease in AUM is there. The fund is not taking new AUM after crossing the mentioned AUM limit (between Rs. 3000Cr- Rs.4000 Cr). It is accepting the new funds through SIPs only.
  • Same is the case for Franklin India Smaller Cos Fund; AUM is decreased by 7% due to the negative returns for small cap stocks during last year.
  • In HDFC Small Cap Fund, a drastic growth of 179% in AUM is shown. It is due to the effect of its high performance parameters and the fund has employed aggressive strategy, giving 179% growth in AUM.
HDFC Small Cap Fund and Category Average % Growth in AUM
HDFC Small Cap Fund and Category Average % Growth in AUM
  • 17% growth in AUM of Reliance Small Cap Fund implies the increase in the new inflows in the fund.
  • SBI Small Cap Fund is having 52% growth in AUM. It shows that though the fund has imposed the restrictions on inflow of new assets after crossing Rs. 600 Cr AUM, large number of new SIPs inflow (around 700Crto 800 Cr) was there into the fund. Therefore, its net effect was 52% increase in AUM of SBI Small Cap Fund.
  • Sundaram Small Cap Fund is also having negative growth of 27% in its AUM in last one year.

During last year small cap stocks have seen 20% to 25% downfall still % growth in AUM of Category Average is positive 29.5%. It is only due to the fresh cash inflows into the funds through during last year. A large number of SIPs in small cap funds are active still because high SIP returns during year 2017.

AUM as a factor of Mutual Fund Investment

  • AUM may also be an important consideration for new fund investors and mutual fund houses comprehensively. Funds with higher AUM can typically have higher market trading volumes which positively influence the liquidity of a fund.
  • Mutual fund investors often look at the fund’s AUM and get impressed if it is on the higher side. People think that if so many investors have already invested in the fund, then it must be a good one. However, there are many reasons why this number should not be a major deciding factor while choosing a fund.
  • Sometimes, an equity fund’s bloating AUM can affect its performance negatively. Nevertheless, there is practically no evidence to indicate that a higher AUM affects the fund performance negatively or aids it.
  • It is the fund manager who should grasp the market opportunities – enter or exit a stock at the ‘right’ time. In many cases, a larger asset-under-management has hindered the manager in taking quick investment calls. Consider the performance of the fund you invested in against the benchmark and its competitors before investing.


  • Assets under management are the overall market value of assets/capital that a mutual fund holds.
  • Overall, AUM is only one aspect used in evaluating a company or investment. It is usually also considered in conjunction with management performance and management experience.
  • However, while it is only one aspect used by investors in investment decisions, generally investors can consider higher investment inflows and higher AUM comparisons as a positive indicator of quality and management experience.
  • In a nutshell, AUM is a good way to assess a fund’s popularity and performance. But it shouldn’t affect your decision to invest or not.

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