Asset under management (AUM) is a measure of the total market value of investments managed by a mutual fund, AMC or distributor at a certain point in time. AUM is used by investors to compare fund sizes, regulators to gauge the health of the industry and AMCs and distributors to determine expense ratios and commissions. AUM directly influences the trail commission income given monthly for MFDs.

When AUM is significantly high, the fund or MFD is managing a larger pool of investor capital. High AUM for AMCs translates into more revenue from expense ratios and economies of scale in the operation of funds. For MFDs, the higher the AUM, the higher is the monthly trail commission income, as commissions are calculated as a percentage of AUM. High AUM also implies investor trust, scheme trustworthiness and usually superior fund management depth.

MFD income is directly tied to AUM, as trail commission is calculated as a yearly percentage of AUM and paid monthly. An MFD with an AUM of ₹10 crore would earn about ₹7 lakh a year at a blended rate of 0.70 percent. A ₹50 crore AUM would earn ₹35 lakh a year. As the market drives up the AUM and fresh investments come in, the trail income goes up with it and does not require any further acquisition effort.

Five factors influence AUM growth in mutual funds: market performance (rising markets grow existing AUM proportionally), new investments including lump sums and SIPs, redemptions that reduce AUM, client retention, which keeps AUM invested longer and product mix between equity, debt and liquid categories. When it comes to MFDs, SIP mobilisation and client retention are the two most controllable and greatest impact levers for long-term AUM growth.