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Knowing the policies related to taxation on mutual funds can help you calculate your total returns and even choose the right scheme. With a cohesive understanding of this topic, you can maximise your gains and invest according to your financial goals. 

What is Taxation on Mutual Funds?

When investing in mutual funds, you earn dividends or capital gains. In most cases, you are taxed on the scheme, its investments, the holding period and your tax slab. This is why, before investing in mutual funds, you should understand your tax liability for better financial planning. 

What is Securities Transaction Tax (STT)?

Alongside regular tax, your investment may be subject to another taxation scheme called the Securities Transaction Tax (STT). The Ministry of Finance levies this tax on hybrid and equity funds at a rate of 0.001%. 

Factors That Determine Tax

The following determines the income tax in mutual funds that you must pay:

• Scheme Type: The tax you pay may be different based on whether you’ve invested in equity funds, debt funds or hybrid mutual funds. 

• Holding Period: This period starts when you buy mutual fund assets and ends when you sell them off. As per the taxation laws, your gains are subject to lower tax if your holding period is longer and vice versa.

• Dividend: The mutual fund house distributes a portion of the overall profit to all the investors, called a dividend. Tax is calculated on these returns too. 

• Capital Gains: When you profit from your mutual fund investment by selling units for a higher price, it is called a capital gain. The tax amount also varies for these gains. 

Taxation of Capital Gains

If your holding period is longer than 12 months, you will need to pay tax based on long-term capital gains. If your holding period is shorter, you will be taxed accordingly. Check the details 

• Equity funds: If your holding period is less than 12 months, your gain is considered a short-term capital gain. It is a long-term gain if your holding period is more than 12 months. This is also true of hybrid equity-oriented funds. 

• Debt funds: Gains from such funds are always considered short-term capital gains unless you invested in them before April 1, 2023 and sold them on or before July 23, 2024. This is also true of hybrid debt-oriented funds. 

Taxation on Mutual Funds

To learn about how to pay tax on mutual funds, you can follow the list below, which offers a look at the different types of funds and the taxation rules that apply: 

Taxation on Equity Funds with a Minimum 65% Corpus Invested in Equity	Holding Period	Long-Term Capital Gains Tax	Short-Term Capital Gains Tax
Sold before July 23, 2024	More than 12 months	10%	15%
Sold on or after July 23, 2024	More than 12 months	12.50%	20%

Taxation on Debt Funds with Minimum 65% Corpus Invested in Indian Debt Instruments Before 1st April 2024	Holding Period	For Long-term	For Short-term
Before July 23, 2024	More than 36 months	20% with indexation benefit	As per the latest slab rate
On or after July 23, 2024	More than 24 months	12.50%	As per the latest slab rate
If invested after 1st April 2024 and sold on any date	No period of holding	As per the latest slab rate	As per the latest slab rate

Taxation on Hybrid Funds with More Than 35% and less than 65% Invested in Equity	Holding Period	For Long-term	For Short-term
Sold before July 23, 2024	More than 36 months	20% with indexation benefit	Slab rate
Sold on or after July 23, 2024	More than 24 months	12.50%	Slab rate

Also Read : Compounding in Mutual Funds

Taxation on SIP

Due to the periodic investment structure of SIP, you invest a small amount weekly, monthly, quarterly, twice a year or annually. The tax is based on when you invest. If you hold the units from your first investment over a year, any gains are treated as long-term capital gains. If this amount is below ₹1.5 lakhs, no tax is applicable. 

For your second month’s investment, a short-term capital gains tax at a flat rate of 20% is levied. This has no relation to your tax slab. Keep in mind that you also need to pay cess and surcharge. 

Mutual funds may require time to give you the returns you desire, so opting for a longer lock-in period can be helpful. If you need funds during this time, apply for a Loan Against Mutual Funds from Fibe and get up to ₹10 lakhs. This is a great way to continue your investment and increase your potential for gains while accessing funds for immediate use. Apply now to get your loan disbursed within a few minutes.

FAQs on Taxation on Mutual Funds

Are mutual fund taxes payable every year?

Tax on mutual funds only applies when you want to redeem units or sell them. It also applies to any dividends you may receive, which are counted towards your total income. 

How much of my mutual fund investment is exempt from taxes?

Under Section 80C of the Income Tax Act, you can invest up to ₹1.50 lakhs per year in Equity Linked Savings Scheme and get a tax deduction. Your savings can go up to ₹46,800 each year in this way. 

How can I avoid paying taxes on mutual funds?

You can redeem units of your equity fund after a year and if the gains are under ₹1.25 lakhs, you can avoid long-term capital gains tax. 

Are international mutual funds taxed differently in India?

After the recent Budget 2024, the holding period of international funds was reduced to 24 months, where a long-term capital gains tax is levied at 12.5%. This makes investing in these funds more attractive.

Mutual funds in India come in many types, each offering different benefits—like earning returns, getting dividends, saving on taxes, or reducing risk. To find the right one for you, it’s important to understand what each type offers. This helps you build a balanced portfolio based on your age, goals, and where you are in life. 

There are different types of funds in India and knowing how they work can help you make smarter investment choices. Whether you’re looking for growth or stability, it’s good to explain the types of mutual fund options available, including what securities they invest in and when you can redeem your units. 

Here are a few listed below: 

A) Types of Mutual Funds Based on Asset Class 

• Debt Funds: These schemes invest in fixed-income instruments to give you returns through appreciation of capital and dividends or interest. They pose a lower risk than equity as they invest in bonds, government securities, and treasury bills.  

• Equity Mutual Funds: These are investments in company stocks where you earn returns based on revenue and profitability. These are riskier but also have the potential for high returns.  

• Money Market Funds: Typically, these schemes possess a maturity duration of up to one year. They constitute a short-term, low-risk investment choice that allocates funds to securities such as treasury bills, certificates of deposit, and commercial paper.  

• Hybrid Mutual Funds: This type is a mix of equity and debt classes to provide a balance of high returns and low-risk stocks. This is why such schemes are also called balance funds.  

B) Types of Mutual Funds Based on the Structure 

• Open-ended Mutual Funds: This is a scheme which has no fixed entry or exit point. You can invest in such schemes anytime and withdraw your investments without any restrictions. In this way, it offers high liquidity.  

• Close-ended Mutual Funds: Unlike the open-ended scheme, this investment has a fixed maturity period and offers a restricted number of units for purchase. Consequently, you can invest solely during the initial offering period. Such schemes may include debt and/or equity and are ideal for long-term investment.  

• Interval Mutual Funds: Merging the advantages of closed and open-ended schemes enables you to purchase and trade finite stocks within a specified timeframe. This is perfect if you seek a long-term investment choice that offers high liquidity.  

C) Types of Mutual Funds Based on the Investment Goal  

• Aggressive Growth Funds: These are equity-related instruments that give you great returns at a higher market risk, suitable for long-term investment.  

• Capital Protection Funds: This aims to protect the initial investment while offering modest returns by investing in hybrid schemes. They invest mostly in debt securities to overcome market downturns.  

• Equity Linked Savings Scheme: This is a tax-saving option that qualifies under section 80 C of the Income Tax Act. It allows you to receive tax deductions up to 1.5 lakhs when you invest for at least 3 years.  

• Fixed-Maturity Plans: If you are looking to invest in debt securities with a fixed lock-in period, this plan is ideal. It allows you to invest in the short term with lower risk. 

• Growth Funds: Focusing on capital appreciation, this option primarily invests in equity to get higher returns. It’s ideal if you have a high tolerance for risk and are looking for a long-term investment.  

• Gold Funds: Investing in gold is a preferred option by Indians as it provides a hedge against inflation and diversifies the investment portfolio. Gold funds allow you to invest in gold EFT.  

• Income Funds: This debt fund category is designed to provide significant capital growth through dividend distributions by investing in both government and corporate bonds. 

• Liquid Funds. It allocates funds in debt instruments with a maturity of as much as 90 days, providing flexibility and reliable returns. This is a great way to give yourself the potential to grow your investment within a shorter duration.  

• Pension Funds: This type of mutual fund scheme aims to provide you with a retirement corpus and comes with a minimum lock-in period of 5 years. You can also invest up to the age of retirement, during which the fund manager invests as per your risk appetite.  

D) Types of Mutual Funds Based on Market Capitalisation 

• Large Cap Mutual Funds: This type of fund invests in the top 100 companies listed on the stock market that have a market value of ₹20,000 crores or above. Investing in these poses lesser risk as compared to the two options below.  

• Mid-Cap Mutual Funds: These schemes allocate resources to firms from 101 to 250 based on market capitalization. Such companies possess a market valuation ranging from ₹5,000 to ₹20,000 crores.  

• Small Cap Mutual Funds: It is called a small-cap mutual fund investment if you decide to invest in companies ranking 251 or below in market capitalisation. These companies have a market value of under ₹5,000 crores. These offer a higher potential for returns.  

Comprehending these different categories and sub-types helps you make better choices as per your investment goal. Different types of funds in India can help you diversify your portfolio to mitigate the risk. You can find the right schemes no matter which stage of life you’re in, but it’s important to assess your needs beforehand.  

With Fibe Loan Against Mutual Funds, you can now avail of instant cash of up to ₹10 lakhs while staying invested in the market and growing your portfolio. To know more, Download the Fibe App or visit the website today. 

If you’ve been thinking about how to start investing in mutual funds online in India, the good news is — it’s easier than ever. Whether you’re saving for the future, building wealth, or just starting your financial journey, mutual funds offer a convenient and flexible way to grow your money. 

You don’t need deep stock market knowledge to begin. With the right plan and guidance, you can start mutual fund investment confidently and build long-term wealth with small, regular contributions. 

What are Mutual Funds? 

Mutual funds pool money from several investors and invest it across assets like equities, bonds, or money market instruments. A professional fund manager makes investment decisions to generate returns. 

 Since experts handle the complexities, investing in MF is one of the simplest ways to participate in the market and grow your wealth without actively trading. 

Why Should You Invest in Mutual Funds? 

Here’s why mutual funds continue to be one of India’s most popular investment options: 

• Diversification: Mutual funds spread your investment across different assets like equity, debt and hybrid categories, reducing overall risk. 

• Flexibility: You can invest as per your financial goals and risk appetite—whether through SIPs or lump sum investments. 

• Liquidity: Open-ended mutual funds allow you to redeem your investment anytime, giving you easy access to funds. 

• Affordability: You can start small. Most funds in India allow you to begin investing with just ₹500 through SIPs or ₹1000 in lump sum. 

• Professional Management: Experienced fund managers make investment decisions, saving you time and effort. 

• Tax Benefits: You can save taxes by investing in ELSS (Equity Linked Savings Schemes) under Section 80C. 

• Transparency and Regulation: SEBI ensures investor protection through strict guidelines and regular disclosures. 

How to Invest in Mutual Funds Online? 

If you prefer a digital route, here’s how to start investing in mutual funds online easily: 

1. Through the AMC Website: Visit the official website of your chosen Asset Management Company. Register, complete KYC and start investing in a few clicks. 

2. Using AMC or Broker Apps: Download the AMC’s or distributor’s app. These apps let you start SIPs, track performance and manage investments on the go. 

3. Via Investment Platforms or RTAs: Use platforms like CAMS or KFintech for a quick and convenient experience. You can invest in direct plans here for lower costs. 

4. With Help from RIAs: Registered Investment Advisors can guide you on fund selection and goal-based investment for a nominal fee. 

How to Invest in Mutual Funds Based on Asset Classes? 

Mutual funds are broadly classified into equity, debt and hybrid categories. Here’s how to decide where to invest: 

• Equity Mutual Funds: Ideal for long-term goals. They invest in stocks and offer higher growth potential but carry more risk. 

• Debt Mutual Funds: Perfect for conservative investors. These include liquid, ultra-short duration and long-duration funds that offer stable returns with lower risk. 

• Hybrid Mutual Funds: These balance equity and debt in varying proportions. Options include Balanced Advantage, Multi-Asset, Aggressive, Conservative and Arbitrage funds. 

How to Invest in Mutual Funds for Tax Saving Purpose? 

If you want to grow your wealth and save on taxes simultaneously, consider ELSS (Equity Linked Savings Schemes). 

 ELSS funds qualify for tax deductions of up to ₹1.5 lakh under Section 80C of the Income Tax Act. They have a 3-year lock-in period and offer potential for long-term growth. 

How to Invest Lumpsum Amount in Mutual Funds? 

Planning to invest a one-time amount? Here’s how you can approach it: 

• Choose a lumpsum-friendly scheme, preferably equity or hybrid, based on your time horizon. 

• Invest during market corrections or when valuations are reasonable. 

• Split your lumpsum into smaller tranches using Systematic Transfer Plans (STP) to reduce market timing risk. 

• Track fund performance regularly to ensure alignment with your goals. 

Detailed KYC Process Before Investing in Mutual Funds 

Before you begin investing in MF, completing KYC is mandatory. Here’s how to do it: 

• Visit the AMC website or KYC Registration Agency (KRA). 

• Submit your PAN card, address proof and photograph. 

• Complete in-person verification (IPV) or video KYC. 

• Once verified, your KYC status will be updated across all mutual funds. 

Important Points to Keep in Mind Before Investing in Mutual Funds 

To make the most of your investment journey, keep these tips in mind: 

• Set Clear Goals: Decide your investment based on financial objectives like retirement, education, or a home purchase. 

• Know Your Risk Appetite: Pick equity, debt, or hybrid schemes depending on how much risk you’re comfortable with. 

• Understand Costs: Mutual funds charge exit loads (if withdrawn early) and management fees (TER), which affect net returns. 

• Stay Invested Long-Term: Longer investment horizons help reduce volatility and compound your returns better. 

• Review Periodically: Track performance every few months and rebalance your portfolio if needed. 

• Avoid Emotional Decisions: Don’t redeem during short-term market fluctuations; stick to your financial plan. 

Costs Associated with Mutual Funds 

While investing in MF, it’s important to understand the associated charges: 

• Expense Ratio (TER): This is the management fee charged by the AMC to manage your investment. 

• Exit Load: Some funds charge a small fee if you redeem your investment before a specified period. 

 Both these charges slightly impact your overall returns, so always check them before investing. 

If you need funds urgently but don’t want to redeem your investments, you can apply for a Fibe Loan Against Mutual Funds. 

 It’s one of the fastest ways to get liquidity without disturbing your investment portfolio. You can borrow up to ₹10 lakhs instantly and continue enjoying market growth at the same time. 

FAQs on Investing in Mutual Funds 

1. Where should beginners invest in mutual funds? 

Beginners can start with ELSS for tax benefits or balanced funds for a mix of growth and safety. 

2. Is a Demat account necessary for mutual fund investment? 

 No, it’s not mandatory. However, it simplifies tracking all your investments in one place. 

3. How can I check the status of my mutual fund using the folio number? 

 You can check it via your AMC’s website, consolidated account statement, or mobile app. 

4. How can I add a nominee to my mutual fund? 

 Log in to your online account, go to ‘Add Nominee, fill in the details and submit your request.’ 

If you’re wondering ‘what is compounding in mutual fund and how can it help me grow wealth faster?’, you’re in the right place. Many investors know mutual funds can generate returns, but not everyone realises that compounding can make those returns multiply over time.  

Simply put, compounding in mutual funds means your money earns returns, and those returns start earning even more returns. This creates a snowball effect that can turn small, regular investments into a significant corpus. 

Here we will learn how compounding works in mutual funds, the formula behind it and simple tips to maximise its impact. We’ll also answer common questions like whether mutual funds are compounded monthly or annually. 

Compound Interest Formula 

Before we dive deeper, let’s understand the basic formula of compounding: 

A = P (1 + r/n) ^ (n × t) 

Where: 

• A = Final amount after compounding 

• P = Principal investment 

• r = Annual rate of interest 

• n = Number of times interest is compounded in a year 

• t = Total time in years 

Example: If you invest ₹10,000 at an annual interest rate of 10% compounded annually, after 5 years your amount becomes: 

A = 10,000 (1 + 0.10/1) ^ (1 × 5) = ₹16,105 

This simple calculation shows the power of compounding in mutual fund investments. The longer your money stays invested, the more it grows exponentially. 

What is Compounding? 

Compounding happens when the money you invest earns returns, and those returns are reinvested to earn even more. Over time, it creates a cycle where your wealth grows faster year after year. 

Simple Example: Imagine you put ₹1,000 into a mutual fund at 10% annual growth. After the first year, it grows to ₹1,100. If you reinvest that ₹100 instead of withdrawing it, the second year’s return is 10% of ₹1,100 which is ₹110 making your total ₹1,210. This continues to grow bigger each year. 

That’s the power of compounding in mutual fund investments; your money doesn’t just grow, it grows on top of growth. 

How Compound Interest Works in Mutual Fund Investments? 

When you invest in mutual funds, you earn returns through dividends and capital appreciation. If you choose the reinvestment option, these returns are added back into your investment instead of being withdrawn. This increases the number of fund units you hold and amplifies your future earnings. 

For example, by reinvesting dividends rather than taking them as cash payouts, you let your investment snowball over time. This is the real beauty of compounding in mutual funds. 

How to Get the Benefits of Compounding? 

To truly benefit from the power of compounding in mutual fund, here are some practical steps: 

• Start early: The earlier you begin, the more time compounding has to work its magic. 

• Invest regularly: Even small SIP contributions add up over time. 

• Reinvest your returns: Don’t withdraw dividends too early. 

• Stay invested long term: Breaking investments reduce the compounding effect. 

• Diversify wisely: Spreading across funds can improve returns and reduce risks. 

Impact of Compounding on Your Investments 

The effect of compounding in mutual funds is often underestimated. What seems like small, slow growth in the beginning accelerates over time into significant wealth creation. 

It’s not just your principal that earns returns, but also the returns you’ve already accumulated. That’s why staying invested for longer periods is crucial to unlocking the power of compounding in mutual fund schemes. 

Conclusion 

Compounding works best when you let your money stay invested for the long term. But what if you need funds urgently? Instead of withdrawing your mutual fund investment and interrupting compounding, you can opt for a Loan Against Mutual Funds with Fibe. 

With Fibe, you get: 

• Instant access to up to ₹10 lakhs 

• Interest charged only on the amount you use 

• A quick and hassle-free application process via the Fibe app or website 

This way, your investments continue to grow through the power of compounding in mutual fund while you meet your immediate financial needs with ease. 

FAQs on Compounding in Mutual Funds 

1. Do mutual funds compounded monthly or annually? 

 It depends on the scheme. Some mutual funds compound daily, some monthly, quarterly, or annually. 

2. Does SIP compound monthly? 

 Yes, SIPs are typically compounded monthly because investments are made every month. 

3. Can I track the compounding effect on my mutual fund investments? 

 Yes, you can monitor growth by checking how your reinvested dividends and returns add up over time. 

4. Can I expect the same compounding effect with all mutual funds? 

 Not necessarily. The effect depends on factors like how much you invest, for how long, and the rate of return. 

NAV represents the per-unit value of a mutual fund scheme. It tells you how much each unit of the fund is worth on a given day.

Let’s say,
if you invest ₹10,000 in a mutual fund and the NAV on that day is ₹50, you will get 200 units of the fund. If the NAV increases to ₹55 over time, the value of your investment goes up, even though the number of units you hold remains the same.

Knowing the NAV formula and how it works helps you track your investment better and make smarter financial decisions. 

What is NAV in Mutual Funds? 

NAV in mutual funds is the market value per unit of the scheme. It is calculated by dividing the total value of the fund’s assets (after subtracting liabilities) by the number of outstanding units. 

NAV Formula

NAV = (Assets – Liabilities) ÷ Number of Outstanding Units 

Imagine a mutual fund with: 

• Assets worth ₹100 crore 
• Liabilities worth ₹5 crore 
• Outstanding units: ₹10 crore 

NAV = (100 – 5) ÷ 10 = ₹9.5 per unit. This is the price you pay to buy a unit or the amount you receive when redeeming one. 

This is known as the nav formula in mutual fund terms and it’s the same across fund types. 

• Daily NAV Calculation: A mutual fund’s NAV is updated every business day after the market closes at 3:30 pm, based on the day’s closing portfolio value.
• Open-ended vs Close-ended funds: Fund houses declare NAV daily for open-ended schemes, while closed-ended funds may share NAV weekly or monthly. 
• Misconception Alert: A lower NAV doesn’t mean the fund is cheaper or will give better returns. What really matters is the scheme’s portfolio quality and historical performance. 

Mutual Fund NAV Calculation: Assets & Liabilities 

The mutual fund nav calculation process involves two components: 

1. Assets 

Assets include everything the fund owns. This could be: 

• Equity shares (stocks) 
• Bonds, debentures and government securities 
• Money market instruments 
• Cash and cash equivalents 
• Accrued income (like dividends and interest receivable) 

2. Liabilities 

Liabilities are the obligations the fund has to meet. These could be: 

• Management and operating expenses (expense ratio) 
• Payables such as outstanding payments, audit fees, etc. 
• Borrowings, if any 
• Any accrued charges or liabilities 

When you subtract the total liabilities from the total assets and divide the result by the number of units, you get the mutual fund NAV calculation. 

So, if you’ve ever wondered how to calculate NAV of mutual fund, the process is simple: check the fund’s assets and liabilities, apply the formula and divide by units. 

Role of NAV in the Performance of a Fund 

• Performance check: A rising NAV shows that the value of the fund’s investments is growing
• Easy comparison: NAV helps you see how a fund is performing compared to other funds in the same category
• Buy or sell decisions: Looking at NAV trends can help you decide when to invest or redeem units
• Clear tracking: Since NAV is updated regularly, it makes tracking your investment pretty simple
• Fair and regulated: NAV is calculated under SEBI and AMFI guidelines, which keep the process consistent and transparent

Also Read: Best SIP to Invest

Why is NAV in Mutual Funds Important for Investors? 

As an investor, NAV helps you: 

• Understand the current value of your holdings 
• Track the growth of your investments over time 
• Calculate redemption value when you sell units 
• Make informed investment choices based on fund performance 

Remember, how to calculate NAV is important, but what’s even more important is observing its growth trend over time. 

Final Thoughts
Understanding NAV, the nav formula in mutual fund, and its calculation gives you clarity about your investment’s worth. However, don’t make decisions based on NAV alone—consider the scheme’s returns, expense ratio, fund manager’s track record and your financial goals. 

And here’s the best part — if you need liquidity, you can get instant cash up to ₹10 lakhs against your mutual fund portfolio with Fibe. You continue to grow your investments while meeting your financial needs. 

Download the Fibe App today and explore Loan Against Mutual Funds to make the most of your portfolio. 

FAQs on NAV in Mutual Funds 

1. Can the NAV of a mutual fund go negative? 

No, NAV cannot go negative. It may rise or fall with market volatility, but since NAV = (Assets – Liabilities) ÷ Outstanding Units, the result will always remain non-negative. 

2. How can I check the NAV of a mutual fund? 

 You can check NAV in two simple ways: 

• Visit the official AMC website of your fund 
• Check the AMFI NAV history page for daily updates

If you’ve ever researched mutual funds, you might have come across the term AUM meaning Assets Under Management. Simply put, AUM is the total market value of all the assets that a mutual fund scheme manages on behalf of its investors. This includes stocks, bonds, cash and other securities.  
Many investors often ask: ‘Is a higher AUM always better? Does AUM affect fund performance?’ The answer is — while AUM gives you a fair idea about the size and trustworthiness of a fund, it’s not the only factor to look at when investing. 
 
AUM also reflects the fund house’s performance gradient and scale, showing how effectively the Asset Management Company (AMC) manages investor money. Much like market capitalisation in stocks, AUM indicates the fund’s size and credibility. But just like with stocks, bigger isn’t always better — the performance and consistency of returns matter more. 

What is AUM in Mutual Funds? 

AUM, or Assets Under Management, refers to the total value of investments a fund manager or AMC controls on behalf of investors. This includes bonds, equities, and other assets. The number isn’t fixed — it changes daily with inflows and outflows of investor money and market value shifts. 

AUM can grow when more investors put in money or when the portfolio performs well. On the other hand, it decreases when the market dips, returns fall or many investors redeem their units. 

How to Calculate AUM? 

The formula for AUM is simple:  
AUM = (Number of Units or Shares) × (Current Market Price per Unit) 

Here, the Current Market Price is also referred to as NAV (Net Asset Value). Calculating AUM helps you understand how big the fund is and how well it’s attracting investors. 

Why Does AUM Change with Time? 

AUM is not a static figure, it changes every day. Some of the reasons are: 

• Buying and selling of units by investors 

• Changes in the market value of securities 

• Dividends paid or reinvested 

• Daily fluctuation in inflows and outflows of investor money 

If you notice sharp fluctuations in AUM, it usually means the fund is invested in more volatile assets or that investor activity is very high. 

Importance of AUM in Mutual Funds 

Here’s why AUM plays such a key role in mutual fund investing: 

• Shows the total fund size and investor confidence 

• Reflects the AMC’s credibility and trustworthiness 

• Affects the fund’s liquidity – higher AUM means easier redemptions 

• Helps compare schemes within the same category 

• Indicates the fund house’s long-term performance gradient 

Impact of High AUM on Mutual Funds 

While high AUM is generally positive, it comes with both pros and cons: 

• Better stability – Large AUM shows strong investor trust 

• Higher liquidity – Easy entry and exit for investors 

• Lower expense ratio – Costs are spread across more investors 

• Slower decision-making – In equity funds, very large AUM can reduce agility 

• Returns may flatten – Especially if the fund struggles to find enough good opportunities 

AUM and Expense Ratio 

AUM is directly linked to the expense ratio. Larger AUM often results in lower expense ratios since operational costs are distributed across a wider investor base. This means that investors in higher AUM funds generally pay lower fees compared to smaller funds. 

Difference Between AUM & NAV 

• AUM (Assets Under Management): Shows the total value of all assets in the fund. 

• NAV (Net Asset Value): Represents the per-unit price of the fund, calculated daily. 

So while AUM reflects the fund’s overall size, NAV tells you what each unit of that fund is worth. 

Conclusion 

AUM gives you a snapshot of how large and trusted a mutual fund scheme is, but it should not be the only factor in your investment decision. Always compare it with returns, expense ratio, risk exposure, and AMC performance before investing. 

With Fibe, you can unlock the value of your investments while staying invested. Get instant cash of up to ₹5 lakhs with Fibe Loan Against Mutual Funds and continue growing your wealth stress-free. 

Download the Fibe App today to know more. 

FAQs on AUM in Mutual Funds 

Does AUM affect NAV? 

No, AUM and NAV are different. AUM shows the total size of the fund, while NAV is the per-unit price. However, both can be influenced by the fund’s performance. 

How to Increase Mutual Fund AUM? 

AUM increases when more investors put in money or when the underlying securities appreciate in value. Reinvesting dividends can also help boost AUM. 

Are there any risks associated with funds having very high AUM? 

 Yes. Very large funds may face challenges in staying agile and finding enough good investment opportunities, especially in equity schemes. 

Is AUM a good indicator of fund stability? 

 Generally yes. Higher AUM shows investor confidence, trust, and liquidity — but you must also check returns and risk profiles.