What Is a Mutual Fund's Total Assets Under Management?

Definition & Examples of Mutual Fund AUM

Female financial advisor explaining mutual fund assets to a client
•••

 Thomas Barwick / Getty Images

Financial institutions such as mutual funds or banks manage a variety of securities on behalf of their clients. The term "assets under management" (AUM) describes the total amount of those assets managed by a particular bank or fund.

Whether you're considering a mutual fund or evaluating one in which you already own shares, it's important to know what is included in this definition. While the term might appear straightforward, knowing the underlying details can help investors make more informed decisions about buying mutual funds.

What Is Assets Under Management?

For a mutual fund, brokerage, or portfolio manager, assets under management is the total dollar amount of all assets in the fund. This can be the AUM for one client or for the entire fund portfolio. In this way, AUM communicates something about the size of an investment company or product, or about the size of an investor's portfolio.

AUM can fluctuate daily based on what investors buy or sell as well as changes in share value over the course of the day.

  • Acronym: AUM
  • Alternate name: Funds under management

How Assets Under Management Works

If you purchase $10,000 worth of shares in a mutual fund, that money is added to the total AUM of the fund. The company will use your money to purchase additional securities for the fund, and then that $10,000 will grow or shrink depending on how the fund performs.

Looking at it from the individual angle, say that $10,000 in shares you purchased was on top of $50,000 you already owned. That would make your total AUM with that mutual fund $60,000.

Why AUM Is Important

Knowing a mutual fund's assets under management can be useful to an investor because a larger AUM amount can become a drag on the fund's performance, as it's more difficult and cumbersome to manage.

A high relative size of net assets can also force a fund into a different style or category. For example, a small-cap stock fund with $1 billion in net assets may not perform as well as a small-cap stock fund with $500 million in net assets.

This is because large investments in small companies can actually adversely affect the share price of the small company being bought or sold in the fund. For this reason, small-cap stock funds that have high net assets tend to buy stocks of larger-capitalization companies, which can cause the fund to evolve into a mid-cap stock fund, getting away from the fund's initial focus. This is called style drift.

An individual investor will often be charged fees as a percentage of their total AUM, and this percentage usually decreases as AUM increases.

AUM vs. NAV

A mutual fund's total AUM is not to be confused with net asset value (NAV), which represents the total assets minus liabilities. This can be used to calculate how much a share of the particular fund is worth. Like AUM, this fluctuates daily as total assets and liabilities change.

Evaluating Total AUM

Size is relative, and it helps when an investor understands what qualifies as too much by comparing to averages, or apples to apples, so to speak. For example, total assets under management for an average large-cap stock fund can be in the range of $500 million.

The largest large-cap stock funds can have more than $50 billion under management, although bigger is not necessarily better. It's helpful to look for average to below-average AUM for a mutual fund, and it generally holds that the smaller the capitalization of a fund, the lower the AUM an investor will prudently seek.

However, extremely low AUM, such as $10 million or less, can be cause for caution. Again, refer to the AUM averages for other funds within your target fund's category to make apples-to-apples comparisons and look for average to below-average AUM.

Note that the size of an index fund's total assets under management will not typically affect its performance as it will for an actively managed mutual fund. In fact, many actively managed large-cap stock mutual funds with high relative AUM often begin performing like an index fund because the manager is forced to buy stocks that are in the index.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

Key Takeaways

  • A mutual fund's assets under management (AUM) is the total amount of all securities managed by the fund.
  • It can also represent the total amount of investments that a fund, brokerage, or portfolio manages for one investor.
  • AUM provides an investor with insights into a fund's potential performance.
  • Individual investors will often receive fees as a percentage of their total AUM.

Article Sources

  1. U.S. Securities and Exchange Commission. "Net Asset Value." Accessed July 21, 2020.