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October 30, 2022

What is AUM in mutual funds? All you need to know

AUM-in-mutual-funds

What is AUM in mutual funds? What does it stand for or how is it calculate? Let’s answer what does it mean when investors talk about AUM in mutual funds!

The aggregate market value of the investments held by a mutual fund is known as its Assets Under Management (AUM). On behalf of the investors, the fund manager handles these assets and makes all investment-related decisions.

AUM is a measure of a fund house’s size and performance. The assets managed by a fund can be easily compared with other similar funds’ performance over time. 

The returns a mutual fund receives are also factored into the AUM value. This can be used to purchase securities, hold them as specified by the investing mandate, or distribute dividends to investors. 

Things to consider in AUM before investing? 

Investors in mutual funds frequently evaluate the fund’s AUM and are impressed if it is on the higher side. People assume that a fund must be good if so many investors have previously contributed to it.

However, there are a lot of reasons why this number shouldn’t matter when selecting a fund. 

Some of the most crucial elements to consider are the expense ratio, the fund manager’s reputation, and compliance with the investing mandate. Let’s examine the significance of AUM in relation to various fund types. 

1. Large-cap funds 

Let’s examine an example of how AUM affects large-cap mutual funds. Two large-cap equities funds are HDFC Top 200 and Mirae Asset India Opportunities.

The former’s AUM is Rs.14,655 crore compared to the latter’s just Rs.4,738 crore. Most investors may choose to invest in HDFC Top 200 for this reason. However, the Mirae has historically earned higher returns over various periods. 

2. Small-cap funds 

Small-cap funds typically limit the inflow of cash after a specific threshold. A well-known case of this is the DSP BlackRock Micro Cap Fund.

This typically happens when a mutual fund’s assets exceed a certain threshold.

When the market fluctuates, the fund might not be able to quickly trade its shares if it becomes a major stakeholder in a company.

Due to this, small-cap funds frequently stay away from lump-sum investments and instead opt for SIPs. 

3. Debt funds 

If you’re considering investing in debt funds, AUM is an important factor to consider. The fixed fund costs might be split among more investors in a debt fund with higher capital.

This can lower the cost per individual and hence boost fund returns.

Additionally, more assets under management assist the fund organization in securing fair interest rates from debt issuers. 

4. Equity funds 

Here, stability in returns and commitment to the investing mandate by the fund company is more important than AUM. By stability, we mean surpassing the benchmark during both the highs and lows of the market.

As a result, rather than popularity or size, an equity fund depends on the asset manager’s ability to produce strong returns consistently. 

How to calculate AUM in mutual funds? 

Fund houses use different techniques to determine assets under management. When a fund continuously generates positive returns, its total investment value will increase.

Growth in AUM might result from the attraction of new assets and investors due to strong performance. 

Similarly, assets may drop if the market value or investment performance declines. The same applies to sudden fund closures and share redemptions by investors.

Capital that has been invested in the firm’s goods is included in its assets under management, which also includes the stock of the company’s executives. 

Formula to calculate AUM: “AUM = Net Asset Value (NAV) * Total number of units.” 

AUM’s impact on the expense ratio or fee 

Every fund house charges a fee called a management fee that is based on the size of the fund. Investors are charged based on the number of units they own at a single cost for the entire fund.

The fees are unaffected by the performance of the fund.

It just pays for administrative costs and establishes the asset manager’s pay for his work. The annual costs to run a mutual fund are measured by the total expense ratio (TER).

According to SEBI, the AUM must always be more than the TER. 

AUM in mutual funds
source: pixabay

High AUM’s effects on mutual funds 

AUM growth can occasionally hurt an equity fund’s performance. However, there is hardly any data to suggest that a bigger AUM either helps or hurts the fund’s performance.

The fund manager is the one who should seize market opportunities and buy or sell a stock at the appropriate moment.

Larger assets under management have frequently made it more difficult for the manager to make rapid judgments regarding investments. Before investing, evaluate the fund’s performance in relation to the benchmark and its rivals.

Higher AUM means the manager needs to be on point and well-experienced. Check the experience of the manager in handling high assets before investing in such funds.  

AUM and market fluctuations 

Market movements have a significant impact on the assets managed. The assets of the fund will increase when it generates returns and decrease when it suffers losses.

This impacts the mutual fund fee as well. Lower expenses typically equate to lower value.

For instance, imagine that a mutual fund that has produced 10% returns has received a total investment of Rs. 10,000 from 100 investors. If so, Rs. 11,000 would be the fund’s AUM.

After all, businesses determine the worth of their assets under management using a variety of techniques. 

AUM is a great way to evaluate a fund’s popularity and performance. However, it should not influence your decision to invest in that fund.

Should you consider AUM before investing?

AUM is an essential factor that helps you in shortlisting the funds. The higher the AUM, the more stable the fund could be. Often you will see Analysts mentioning AUM > Rs 1000 crore is a good benchmark as it defines the fund’s stability. 

Also, the expense incurred to manage the fund gets spread, and the expense ratio reduces with rising AUM. Let us see the impact of AUM on equity funds and debt funds – 

1. Equity funds

In equity funds, consistency and sustenance of returns are more critical than AUM. Thus, the investment process and philosophy should be given more importance. 

2. Debt funds

In debt funds where the investment is in different fixed-income instruments, it is critical to consider AUM. While benefits such as expense ratio and reputation are one thing, the essential thing in debt funds is getting reasonable rates with debt issuers.

With higher AUM, the fund manager tends to get better rates which add to the performance. Also, higher AUM in debt funds for retail investors adds to the fund’s stability.

Impact of high AUM in mutual funds

While a high AUM is good for the stability of the fund but huge AUM often impacts your performance.

For example – in the case of Large Cap Equity funds, if a fund reaches are very high AUM, the performance is likely to get impacted as the universe of stocks in which the money can be deployed is minimal and beyond a point outperforming the benchmark in large-cap space (where information inefficiency is negligible) is often tricky. 

Thus, while AUM is necessary for the stability of a fund, it is not the only and single most critical factor on which the decision to buy or sell a fund should be dependent.

FAQs

What is a good AUM in mutual fund?

AUM is a measure of a fund house’s size and performance. AUM size only matters in certain funds.

What is AUM vs NAV?

NAV refers to the prices of shares in a fund while AUM refers to the value of assets managed by the advisor.

How is AUM calculated?

Here is the formula to calculate AUM: “AUM = Net Asset Value (NAV) * Total number of units.” 

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5 financial things to consider before child planning.

5 financial things to consider before child planning.

Both life and wallet will never be the same once you decide to have a baby. No event in your life will signify financial change quite the way this one does, from the first prenatal appointment to the day of college graduation (and beyond). 5 financial things to consider before child planning 1. Create a budget Before you start child planning, you need to have a budget in place. You and your partner may need to create a realistic budget based on your expenses and your streams of income. Once you know how much you can afford to spend, you will be able to tackle the costs easily. A new child is a new family member that needs space! So if you need extra space once the baby is born, figure out what kind of home you can afford, whether it's a slightly larger apartment, a warm cottage, or a pricey house. Will you want the latest baby things or your sister’s passed-on ones? Think about what sort of child care would you require and get candid with your expenses before you start making any purchases. Money Management Tips for Homemakers Read More 2. Costs associated with birth As new parents, you need prenatal vitamins, alternative therapies, labor and delivery alternatives, and screening tests. Give yourself enough time to change or upgrade insurance plans should you need more comprehensive coverage. Good health insurance is vital in this economy. Hospital bills, medical fees, and maternity costs can be high. According to estimates from the industry, a straightforward delivery could cost between Rs 50,000 and Rs 70,000, but a private specialty hospital could charge up to Rs 2-3 lakh. A cesarean delivery could result in a cost rise of up to Rs 4-5 lakh. Before having a kid, you should make financial arrangements for the costs associated with the delivery and child care. 3. Consider maternity leave The vast majority of Indian employees are not entitled to paid family leave. If the mother is employed, you might need to think about taking a lengthier (unpaid) maternity leave or a sabbatical for a year or two. This can be a huge financial loss for families that rely on both streams of income. Paid parental leave is not always an option. Find out if your workplace offers paid leave for new parents and if there are any policies in your favor that you can utilize. Determine the number of weeks covered and the proportion of your salary that is used. Do you have to use your sick and vacation days first? If you don't have access to paid time off or you're going to take more unpaid time off, you might want to cut costs or rely on your savings. 4. Purchase life and health insurance You'll want your child to be stable financially if something were to happen to you or your partner. A life insurance policy can assist in paying for things like child care, housekeeping, cooking, and more. Purchasing maternity insurance is the first action you can take to cover maternity costs. When purchasing health insurance, (even for a couple), it is important to confirm that the policy includes coverage for maternity costs and, if applicable, any applicable waiting periods. Additionally, by paying a larger rate, you might add pregnancy coverage to a current insurance policy. Buying health insurance is most important when considering having a child. Get your health covered in your plan so that you are not financially burdened in case of a health emergency. 5. Plan for the child’s education Just like the prices of lemons and oranges are growing, the cost of education is skyrocketing. Saving for your child’s college is a necessity. When it comes to saving money for college, time and compound interest are your best friends. Even while inflation is an unavoidable fact, keep in mind that education inflation is far higher. Utilizing the force of compounding is one approach to combat this, but it will only be effective if you have a long-term strategy in place. You indeed have no idea what career path your child will take, but you still need to put aside a portion of capital that can be utilized when the time comes. Right now, you need to think about the type of education you would like to offer because the practical costs of studying engineering in India vs. the US would be very different. From giving birth to seeing them off to college, watching your child grow and thrive is every parent’s dream! So give those dreams wings by planning ahead and investing for their bright future!  TALK TO AN EXPERT
5 investment plans every parent should have

5 investment plans every parent should have

As parents, we have a profound responsibility to ensure a bright and secure future for our children. While providing love, care, and education are crucial aspects, financial planning plays a pivotal role in setting the stage for their success. Investing wisely is key to securing their future aspirations and safeguarding against unforeseen circumstances. Let's explore five essential investment plans that every parent should consider, ranging from mutual funds and US ETFs to US stocks and insurance. So, we will dive in and discover the strategies that can pave the way for your child's financial well-being. Education Fund: The Power of Mutual Funds One of the most crucial investments you can make as a parent is in your children's education. Start by setting up an education fund that specifically caters to their academic pursuits. Consider tax-efficient options like a 529 plan, which allows you to invest in a variety of mutual funds, ensuring growth potential while enjoying tax benefits. Platforms like EduFund (www.edufund.in) offer valuable guidance and tools to help you plan and manage your child's education fund effectively. investment plans US ETFs: Diversification Made Easy 1. Exchange Traded Funds Exchange-Traded Funds (ETFs) have gained significant popularity in recent years due to their flexibility and global exposure. Just like mutual funds, ETFs represent a basket of securities, including stocks, bonds, commodities, or a combination thereof. However, unlike mutual funds, ETFs are traded on stock exchanges throughout the trading day at market prices. ETFs offer several benefits, including transparency, liquidity, and cost-effectiveness. Parents can buy and sell ETFs at any time during market hours, allowing for more flexibility in managing their investments. Additionally, ETFs disclose their holdings daily, ensuring transparency in the investment portfolio. With generally lower expense ratios compared to mutual funds, ETFs offer a cost-effective investment option for parents. 2. USA Stocks For parents who are comfortable with taking on more active roles in their investment journey, investing in individual stocks can be an exciting avenue. Owning shares of well-established companies can offer substantial returns over time. While investing in individual stocks requires careful research and monitoring, it can provide the potential for higher growth compared to mutual funds or ETFs. EduFund's resources can assist you in understanding stock investing basics and identifying companies with strong fundamentals. To mitigate risk, parents can consider diversifying their stock portfolios across different sectors and industries. This diversification helps reduce the impact of a single stock's performance on the overall portfolio. In addition, parents should adopt a long-term investment mindset and focus on the fundamentals of the companies they invest in rather than short-term market fluctuations. Investment Tips for Dad's in India Read More Insurance - Protecting Your Family's Future Insurance is a pivotal component of any comprehensive financial plan, especially for parents. Life insurance provides financial protection to your family in the event of your untimely demise. It ensures that your children's education, living expenses, and future aspirations are secure, even in your absence. Term life insurance offers coverage for a specified period, providing a higher coverage amount at an affordable premium. Additionally, health insurance safeguards against unexpected medical expenses, offering peace of mind during uncertain times. By securing adequate insurance coverage, parents can safeguard their family's financial well-being and ensure a secure future. Investment Tips for Mom's in India Read More Mutual Funds - Diversify and Grow Your Wealth Mutual funds are an excellent choice for parents seeking diversification in their investment portfolios. These funds pool money from several investors to invest in a variety of asset classes, including stocks, bonds, and money market instruments. Managed by professional fund managers, mutual funds allow parents to benefit from their expertise and experience in making investment decisions. By spreading investments across different sectors and markets, mutual funds help reduce the risk associated with investing in individual stocks. Parents can choose from many types of mutual funds on the basis of their risk appetite and financial goals. For those seeking stability, bond funds can offer a regular income with lower volatility. On the other hand, equity funds offer an opportunity for capital appreciation through investments in stocks. Balanced funds offer a blend of both equity and bond investments, providing a balanced risk-return profile. By investing in mutual funds, parents can access professional investment management and enjoy the benefits of diversification. You can lay a strong foundation for your family's future by incorporating these investment plans into your financial strategy. Remember that investment decisions should align with your risk tolerance, financial goals, and time horizon. It's always suggested as advice to seek guidance from financial advisors who can provide personalized advice based on your specific circumstances. Conclusion  Investing wisely is an integral part of parental responsibility. By incorporating these five investment plans into your financial strategy, you can take proactive steps toward securing your child's future while also protecting your own financial well-being. Remember to conduct thorough research, seek professional advice, and regularly review your investment portfolio to adapt to changing circumstances. By combining long-term vision with disciplined investment practices, you can build a strong financial foundation for your children, allowing them to chase their dreams with confidence. Start planning today and pave the way for a prosperous future for your family. Consult an Expert Advisor
5 Reasons why Global Education is the Best for Indian Students

5 Reasons why Global Education is the Best for Indian Students

It is universally acknowledged that education is a very powerful weapon. Education can transform an individual and colleges can broaden a child’s horizon. Every child deserves to receive a quality education. There are various reasons why global education is the best for Indian students. ‍From our experiences, we know that when a student receives a world-class education, it helps them become their best version – professionally and personally. Pursuing higher education outside of India seems to be promising in more ways than one. In this blog, we will talk about how studying abroad can affect your life for the better. Let's get started. 5 Reasons why Global Education is the best for Indian Students When you think about it, there are innumerable ways in which a global education can benefit an Indian student. In this article, we will talk about the 5 major ones. Let's get started. 1. Changes Your Life, for Good! International exposure to study at a foreign university and the experience of living in a new country can be life-changing! The combined power of both results in gaining practical knowledge that can help you in life immensely. Living alone in a foreign country can be daunting in the beginning, but it teaches you an immense number of values, and ethics, and not to mention, you become a pro chef! You learn what is not written in the textbooks. Such experiences also shape your personality and groom you as a responsible professional. 2. Holistic And not just Academic Development The Indian education system offers academic rigor. However, there still is room for improvement and development. The cut-offs in premier Indian colleges soar to touch the sky. But whether these colleges provide excellent holistic development is still a big question mark. Regardless of the foreign country you prefer to study in, most global universities focus on not just academics, but also professional qualifications, leadership, and personal development. Foreign programs have gained popularity because the faculty is invested in a student's all-around growth. 3. Opens closed doors Whether it is studying for a master's abroad or a Ph.D. – Foreign universities offer what you commonly don’t find in India. An array of courses across all fields and subjects like - Artificial Intelligence and Data Security or Criminology, and Media Relations. You name it and they have it. As per reports released by the USIEF, in 2019, Indians studying in the U.S. made up 17% of the international student population there. If you want to take the road less traveled or pursue a career in a highly specialized niche, global education opens closed doors. 4. Brighter Career Prospects ‍Indian students who have received good foreign education have an edge over others. You wonder why? Recruiters view international experience as an asset. It is reflective of many things like your skills to compete in a global setting and your ability to adapt to diverse cultures. Global education helps you hone your skills and grow exponentially. ‍After completing their degree, outstanding students can bag an international job as well. 5. Diversity They appreciate unique students. Many top-notch B-schools and other universities seek to promote diversity and inclusion. This means that the admissions team deliberately tries to encourage people from different walks of life to join the classroom. Highly reputed universities welcome meritorious international students. Some even try to strike a balance in their gender ratio thereby including talented girls and giving them an equal chance to fly. As the saying goes- "Sometimes the smallest step in the right direction ends up being the biggest step of your life!" Take the first step towards a brighter future. And, live the life of your dreams! FAQs Why is global learning important for students?   International exposure gained while studying at a foreign university and the experience of living in a new country can be life-changing! The combined power of both results in gaining practical knowledge that can help you immensely in life.  What is the value of global learning?   ‍Indian students who have received good foreign education have the edge over others. You wonder why? Recruiters view the international experience as an asset. It is reflective of many things like your skills to compete in a global setting and your ability to adapt to diverse cultures. International education helps you hone your skills and grow exponentially.  Why foreign education is better than Indian education?   They appreciate unique students. Many top-notch B-schools and other universities seek to promote diversity and inclusion. This means that the admissions team deliberately encourages people from different walks of life to join the classroom. Highly reputed universities welcome deserving international students.    Why do Indians prefer foreign education?   Indian students prefer foreign education because of many factors. Studying at an international university will give students great exposure in terms of meeting people from different cultures and countries. It will also create excellent employment opportunities abroad. Having studied at a foreign university will add value to a student’s resume.   Conclusion These are some of the major reasons why global education molds an individual for the better. In reality, there are many more points that one can consider. Whether it is the quality of education- or the experiences one attains, education abroad is a stepping stone toward untapped opportunities. We know many of us are now thinking, "What about the funds required to study abroad?". Well, saving up for higher education is not as hard as you think.
5 reasons why your child's college education is at stake

5 reasons why your child's college education is at stake

A college education is integral for every child. Not only does it provide your child with a degree and a career, but it also helps them grow as individuals. Yet there are many obstacles to good quality education. Let’s look at 5 reasons why your child’s college education is at stake!  1. Education Inflation  Education has to be the top-most factor when it comes to a child’s college education. Usually, the first thing which comes to our mind when we talk about inflation is the rise in the prices of fruits, fuel, rations, and so on. But education inflation is one domain that tops the chart. Especially after the pandemic, it has been really difficult to keep up with the ever-growing education inflation. Every year, universities hike up their fees in response to the growing prices in different sectors.    According to data generated by the Government of India, it is seen that between the years 2012 and 2020, the inflation in education rose by 10% whereas the food inflation was 9.62%. This data proves that the inflation in education has far surpassed the inflation in other necessities of life. The factors like tuition fees, higher cost of living, improved infrastructure, security, and so on. There are certain hidden costs such as flights, food prices, daily transportation, and accommodation also add up to the overall amount. 2. Lack of Savings  Lack of Savings is one reason why your child’s college education can be at stake. Many Indian parents struggle to save up for college fees and expenses. The way to avoid this hassle is by starting an education fund for their child’s education as early as possible. This helps in improving the potential to counter inflation in education. Your child might want to move abroad for their higher education. In such a case, you would need even more funds. Savings can be done either by going for a savings plan or by investing your money in a potential plan. Parents whose kids are still very young are advised to go for mutual funds. The time horizon can help manage the volatility and crashes that may come up. Also, it can help you gain a good return which will add up to the corpus for your child’s education. source: pixels 3. Lack of Research  A lack of research can lead to poor decisions and consequences. Certain universities are blacklisted and are not accredited by any board or council. The degree that a student gets from this college holds no value. It can prove to be a hurdle in your child’s education and a huge financial burden. Thus, proper research can help you avoid these mistakes and stay from university scams.   Furthermore, you need to ask your child about the course he or she is interested in and pursuing and conduct thorough research on the same. You must look for job opportunities that are offered after the end of that particular course. Avoid going for courses that do not have a properly retained market. 4. Lack of Opportunities  Recognized universities provide you with the opportunity to land a job. It should provide the return on the investment that has been put in. Furthermore, the course that your child selects should have demand in the market. The positions which are in high demand in the market tend to pay you better. If the university is renowned, many companies will conduct their drive for campus placements. Students even opt for off-campus placements if they want to get a specific type of job. 5. Lack of Guidance  Before your child applies to any university, it is important that he or she reads and understands the eligibility requirements of the particular institution. Make sure that your child has the necessary academic performance, extracurricular and entrance requirements to meet admission criteria. Most universities ask for 60% or above as an aggregate to get admission to undergraduate courses. In addition, they also require entrance exam results.    You need to have all the documents prepared beforehand. If your child does not fall in the eligibility category or is unable to produce the required documents, then his or her application might get rejected. Hence, it holds vital importance to take care of these minute details which may cause to be an obstacle.  Plan your child’s education with care to avoid some of the biggest obstacles!   TALK TO AN EXPERT
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