NAV vs AUM - Differences Explained

When you start evaluating mutual funds two terms you will often come across are NAV (Net Asset Value) and AUM (Assets Under Management). At first glance both may seem similar since they relate to the fund’s value but they serve very different purposes. NAV tells you the price of a single unit of the fund while AUM represents the total money managed by the scheme. Understanding the difference between NAV vs AUM helps investors make more informed decisions especially when assessing fund performance, cost efficiency and may provide long term suitability.

Key Takeaways

• NAV shows the per unit price of a fund but does not determine whether the fund is cheap or expensive.
• AUM reflects the total assets managed indicating the fund’s size, liquidity and investor confidence.
• Higher AUM may enable cost efficiencies; however, this depends on multiple factors and does not guarantee better returns.
• SEBI regulates disclosures of both NAV (daily) and AUM (periodically) to ensure transparency for investors.
• Investment decisions should not be based only on NAV or AUM, other factors like portfolio strategy, performance consistency and expense ratio are equally important.

What is NAV in Mutual Funds?

NAV stands for Net Asset Value and it represents the per unit value of a mutual fund scheme. In simple terms it shows how much each unit of a fund is worth on a given day.

NAV per unit = (Market Value of Securities – Liabilities) / Total Outstanding Units

Example - If a mutual fund’s portfolio is worth ₹200 lakh and it has issued 10 lakh units, the NAV per unit will be 20 (200 lakh ÷ 10 lakh units)

Since the market value of securities changes daily, the NAV of a scheme also fluctuates every day. Mutual fund houses publish their NAVs at the end of each trading day in line with SEBI Mutual Fund Regulations. These NAVs are available on the respective fund house websites as well as on AMFI’s official website.

Unlike stock prices that move throughout the day, NAV is declared once a day after market hours. For most schemes purchases and redemptions are processed at the end of day NAV based on the day’s closing prices. Applications submitted after the cut off time are allotted the NAV of the next business day.

What is AUM (Assets Under Management)?

Assets Under Management (AUM) refers to the total market value of all the investments that a mutual fund manages on behalf of its investors. It covers equity shares, bonds, money market instruments, cash and other securities held within the scheme. AUM is dynamic in nature it may increase when markets perform well or when more investors put money into the fund and it can decrease if markets fall or when investors redeem their units.

In the mutual fund industry, AUM is considered an important measure of a fund’s size, credibility and investor confidence. A higher AUM may indicate better liquidity and a larger investor base while fund management charges are generally linked to the percentage of AUM. Simply put AUM reflects the overall financial strength and trust a fund commands in the market making it an important factor for investors to consider.

NAV vs AUM – 4 Key Differences Explained

Particulars	NAV (Net Asset Value)	AUM (Assets Under Management)
Definition	The per unit price of a mutual fund derived by dividing the total value of assets minus liabilities by the number of units outstanding.	The total market value of all assets that a mutual fund manages on behalf of its investors.
Frequency	Calculated and disclosed daily as mandated by SEBI Regulations.	Varies with market performance and investor transactions (inflows and outflows) and is reported at regular intervals.
Purpose	Helps investors determine the value of each mutual fund unit they hold.	Reflects the overall size, scale and investor confidence in the fund.
SEBI Regulation	Daily NAV disclosure is compulsory for all mutual fund schemes.	AUM details must be reported periodically by fund houses as per SEBI guidelines.

 

Does NAV Level Matter When Investing?

Many investors assume that a mutual fund with a lower Net Asset Value (NAV) is cheaper or has higher growth potential compared to one with a higher NAV. However this is a misconception. NAV simply represents the per unit price of a mutual fund and does not indicate whether the fund is undervalued or overvalued. What truly matters is the fund’s underlying portfolio quality, historical performance, risk adjusted returns and the fund manager’s investment strategy. Therefore investment decisions should not be based on the absolute NAV number but on the overall suitability of the scheme to your financial goals.

Does AUM Affect Returns or Costs?

Yes, the Assets Under Management (AUM) of a mutual fund can indirectly impact both the returns generated and the costs borne by investors. A larger AUM often enables the fund house to benefit from economies of scale. This means that certain fixed operational costs such as administration, audit and custodian fees get spread over a larger investor base, resulting in a lower Total Expense Ratio (TER). For investors this translates into reduced costs and potentially better net returns over the long term.

Additionally funds with higher AUM may offer better liquidity, particularly in open ended schemes. This makes it easier for investors to buy or sell units without significantly affecting the fund’s Net Asset Value (NAV).

However having an excessively large AUM can sometimes work against the fund manager. For example in niche categories like small cap or sectoral funds managing a very large corpus can restrict flexibility in selecting stocks. The manager may be forced to spread investments thinly or avoid certain opportunities due to liquidity constraints in the underlying securities.

SEBI Prescribed TER Limits (Effective April 1, 2020)

To protect investors and ensure cost efficiency, SEBI has laid down regulatory caps on the Total Expense Ratio (TER)that a mutual fund can charge. These limits vary depending on the fund’s AUM and whether it is an equity or debt fund

Assets Under Management (AUM)	TER for Equity Funds	TER for Debt Funds
On the first 500 crores	2.25%	2.00%
On the next 250 crores	2.00%	1.75%
On the next 1,250 crores	1.75%	1.50%
On the next 3,000 crores	1.60%	1.35%
On the next 5,000 crores	1.50%	1.25%
On the next 40,000 crores	TER reduces by 0.05% for every increase of ₹5,000 crores of daily net assets or part thereof	TER reduces by 0.05% for every increase of ₹5,000 crores of daily net assets or part thereof
Above 50,000 crores	1.05%	0.80%

 

How to Use NAV and AUM in Due Diligence?

• NAV for performance tracking - The Net Asset Value (NAV) is useful to monitor how a fund’s value has moved over time. It should not be mistaken as a measure of whether the fund is cheap or has higher growth potential.
• AUM for scale and liquidity - Assets Under Management (AUM) indicate the overall size of the fund. A higher AUM may provide cost advantages due to economies of scale and better liquidity in open ended schemes. At the same time excessively large AUMs can sometimes reduce a fund manager’s flexibility in stock picking, particularly in niche segments.
• Look at the bigger picture - Investors should not rely only on NAV or AUM when evaluating a scheme. Other important factors such as portfolio quality, fund strategy, consistency in performance and expense ratio must be considered before investing in line with SEBI’s emphasis on informed decision making.

Conclusion

Both NAV (Net Asset Value) and AUM (Assets Under Management) are crucial indicators in mutual fund investing, but they serve different purposes. While NAV helps in determining the per unit value of a scheme, AUM highlights the overall size and credibility of the fund. Neither should be viewed in isolation. Instead investors should combine these parameters with other key factors such as portfolio quality, consistency of returns, risk profile, fund manager expertise and expense ratio before making an investment decision. SEBI regulations ensure that both NAV and AUM are disclosed transparently enabling investors to make informed and responsible financial choices.

FAQs

1. Does a lower NAV mean the fund is cheaper or has more upside?

Not necessarily, NAV (Net Asset Value) is simply the price of one unit of a mutual fund on a given day. A lower NAV does not automatically indicate that a fund is cheap or has more growth potential. The fund’s performance and upside depend on the quality of the underlying portfolio, asset allocation and market conditions not the NAV itself.

2. How is NAV calculated each day?

NAV is calculated by taking the total value of all assets in the fund subtracting any liabilities and dividing the result by the number of outstanding units. This calculation follows SEBI’s regulations and is done daily to reflect the accurate per unit value of the fund.

3. Why does AUM change even if NAV is flat?

AUM represents the total money invested in the fund. Even if the NAV doesn’t change, AUM can fluctuate due to investor activities new investments increase AUM, while redemptions  decrease it. Market appreciation or depreciation of assets also affects AUM, but inflows/outflows can cause noticeable changes even when NAV is stable.

4. Does higher AUM improve liquidity or reduce costs?

A fund with higher AUM has more money under management, which can make buying and selling securities easier and allow the fund to negotiate lower transaction costs due to economies of scale. However very large AUM can sometimes limit flexibility in certain strategies especially in niche or small cap funds.

 

Disclaimers

Investors may consult their Financial Advisors and/or Tax advisors before making any investment decision.

These materials are not intended for distribution to or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation.  The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions.

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