Assets Under Management: Understanding AUM and It’s Calculation

2024-01-31

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The financial world is a vast and complex ecosystem, and at its heart lies the concept of Asset Under Management (AUM), a key metric used by financial institutions to measure the total value of the assets to help their clients make informed decisions. Whether you are an experienced investor looking to optimize your portfolio or a fund manager seeking strategies for growth, navigating the world of AUM is essential for achieving your financial goals.

Table of Content

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Asset Under Management: A Detailed Guide

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How to Calculate Asset Under Management?

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Why is Asset Under Management Important?

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Tips of AUM for Investors and Fund Managers

This blog will provide you with the details regarding what is Asset Under Management and why this metric is essential for investors and fund managers. Keep scrolling through to know the details.

Asset Under Management: A Detailed Guide

Assets Under Management, or Funds Under Management, refers to the total value of financial assets, including cash, fixed incomes, equities, etc., that an entity or advisor manages on behalf of their clients. It is the aggregate of the current market value of a firm's assets under its control. It is considered as a performance gradient and size parameter of a fund house. AUM can be calculated daily, monthly, or annually based on the criteria for reporting and the investment plan.

The higher the value of AUM, the better investment inflow, quality, and management experience will be. It is an essential financial planning metric because of the following reasons:

AUM assists investors in selecting the top investment management firm to look after their assets.
It is also used to ascertain which assets are subject to management fees.

How to Calculate Asset Under Management?

The calculation of AUM varies from company to company. It gets influenced by the inflow and outflow of investor's capital and thus gets affected daily. If you wonder how to calculate Assets Under Management, here are two ways for you to refer:

Client's Total Investment Value: The current market value of all the assets an investor holds makes up the entire investment worth of a customer. Typically, it consists of a firm's managed investments only. However, some businesses also provide mutual funds, cash balances, and bank deposits. Numerous market conditions, capital appreciation, and asset performance affect AUM value.
Value of Firm's Managed Investments: This calculation method takes into account all the clients that the financial advisor/ firm serves. Thus, the value of AUM is affected by the number of clients and the individual investment value of the investor.

Now that you have an understanding of what is Asset Under Management and how to calculate AUM, let’s move forward to understand why it is essential.

Why is Asset Under Management (AUM) Important?

AUM is a crucial performance indicator important for numerous stakeholders like investors, businesses, and fund managers. Here is a detailed guide for you to explore:

Investment Firms:

Assets Under Management is a critical gauge of an investment firm's size, indicating its scale and scope in the financial market.
It acts as a performance metric, reflecting the success and competitiveness of the investment firm.
It influences investment decisions made by fund managers, as it can impact the allocation of resources and strategies.

Financial Advisors:

Financial advisors can utilise technology tools to optimise investment strategies. Doing this helps in leveraging AUM data to make more informed decisions.
Assets Under Management is a key performance indicator (KPI) and a factor in determining compensation for financial advisors.
It helps financial advisors manage client investment portfolios more effectively by providing insights into asset allocation and performance. The financial advisors recommend investing in high-return plans like Canara HSBC Life Insurance Invest 4G, as the investor can easily customise it per their goals and changing requirements. This unit-linked individual life insurance plan offers a range of funds to help you manage and control your savings.

Investors:

For the investors, AUM reveals the financial stability and strength of an investment firm, offering confidence in the safety of your investments.
The data allows investors to gauge the effectiveness of an investment firm's strategies and assess their historical performance.
It serves as a criterion for evaluating and selecting investment options, helping investors make informed choices in line with their financial goals.

Tips of AUM for Investors and Fund Managers

Before making an investment decision, here are some of the tips that you as an investor or fund manager must consider:

Regular Review: Regularly review the status of your investments or funds. This includes analysing AUM, investment strategies, and performance. Make necessary adjustments based on your findings.
Long-Term Perspective: Assets Under Management fluctuations can occur over time, but focusing on your long-term financial goals can help you weather short-term challenges.
Professional Advice: Consider seeking advice from financial advisors or consultants who specialise in managing AUM. They can provide valuable insights and help you navigate this complex terrain effectively.
Legal and Regulatory Compliance: Compliance is critical to avoid legal complications. Thus, you must adhere to all legal and regulatory requirements governing AUM in your region.

To Wrap it Up!

The world of Asset Under Management is dynamic and intricate. It indicates the firm's success in attracting and retaining clients and generating income and profits. Financial managers suggest that doing thorough research before investing in any plan is extremely crucial. Canara HSBC Life Insurance Wealth Edge is designed to meet investors' life goals and provide them with life insurance to protect them and their family members from uncertain times.

Both investors and fund managers can benefit from a deep understanding of how to calculate Assets Under Management and how it can impact their financial goals. Following the above-mentioned tips and maintaining a proactive approach can maximise AUM while minimising risks and maximising returns.

FAQs

When AUM rises, it leads to higher revenue and reflects investor trust and confidence in the fund's performance.

AUM is a significant parameter that investment companies use to attract new investors and assess the scale of their operations in relation to their competitors.

AUM includes the total market value of all investments managed by a fund, family of funds, venture capital firm, brokerage company, or an individual registered as an investment advisor.

A fund's Assets Under Management (AUM) growth can be attributed to various factors, including asset performance, capital appreciation, and reinvested dividends. Additionally, AUM experiences an increase with new customers and their associated assets.

AUM pertains to the total value of assets managed by an individual or firm rather than a fund. Unlike Net Asset Value, AUM measures the overall value of assets being managed and is not expressed on a per-share basis.

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