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

Definition and Example of a Mutual Fund's Total Assets Under Management

Financial institutions, such as mutual funds or banks, manage a variety of securities on behalf of their clients. The term "assets under management" describes the total dollar amount of those assets managed by a particular fund. The total amount can represent one client's assets under management (AUM) or the entire fund's portfolio. In this way, AUM helps show the size of an investment company or product or the size of an investor's portfolio.

• Acronym: AUM
• Alternate name: Funds under management
  

For example, the XYZ fund invests in stocks within the technology sector. As a result of many investors purchasing shares, the XYZ fund has $20 billion in total assets under management, meaning that $20 billion is invested in various technology stocks. The fund's portfolio manager may decide to buy or sell various technology stocks throughout the year and decides on the fund's asset allocation, meaning the percentages of the fund's total assets allocated to each technology stock.

How Does Assets Under Management Work?

Suppose you buy $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 buy more securities for the fund, and then that $10,000 will grow or shrink. It depends on how the fund performs.

Now, let's look at it from the individual angle. Imagine that the $10,000 you invested was on top of the $50,000 you already owned. That would make your total AUM with that mutual fund $60,000.

What Does a Mutual Fund's Total Assets Under Management Mean to Individual Investors?

Knowing a mutual fund's AUM can be useful, because a larger AUM amount can become a drag on the fund's performance by making it more difficult to manage.

A high relative size of net assets can also force a fund into a different style or category. For instance, a small-cap stock fund with $1 billion in net assets might not perform as well as a small-cap stock fund with $500 million in net assets, 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 that reason, small-cap stock funds that have high net assets tend to buy stocks of large-cap companies. A fund could evolve into a mid-cap stock fund by getting away from its initial focus. This result is called "style drift."

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 figure can be used to calculate how much a share of the particular fund is worth. Like AUM, it fluctuates daily as total assets and liabilities change.

How Can You Evaluate Total AUM?

Size is relative. It helps when you understand what qualifies as too much by comparing to averages, or "apples to apples." For instance, the total AUM 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. But bigger is not always better. It's helpful to look for average to below-average AUM for a mutual fund. Most often, the smaller the capitalization of a fund, the lower the AUM an investor will seek.

Very 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. That can help you make comparisons when it comes to average or below-average AUM.

Note that the size of an index fund's total AUM will not often 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 begin to perform like an index fund. That's because the manager is forced to buy stocks that are in the index.