What are Assets Under Management (AUM)?

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Overview:

Life Insurance Corporation of India (LIC) recently said its exposure to the Adani Group was less than 1% of the total assets under management (AUM) at book value.

About Assets under management (AUM):

  • What is it?  AUM is the total market value of investments a financial institution (such as a bank, mutual fund, or hedge fund) owns or manages on behalf of its clients.
  • AUM can be calculated in different ways, depending on the firm’s discretion.
  • The calculation is done on the basis of either the total capital that the firm handles or calculating the Individual client’s money.
  • AUM fluctuates daily reflecting the variable returns from stocks, mutual funds and change in prices of fixed investment.
  • Importance of AUM:
    • AUM helps to build the market value of the firm.
    • It can be used as a market tool to attract potential new customers. The higher a firm's AUM is, the more likely people are to trust them and invest with them.
    • A fund's management fees and expenses are often calculated as a percentage of AUM.

What is Book value and Market value of a company?

  • A company's book value is the amount of money shareholders would receive if assets were liquidated and liabilities paid off. The book value of an asset is strictly based on the company’s balance sheet 
  • The market value is the value of a company according to the markets based on the current stock price and the number of outstanding shares.
  • When the market value is less than book value, the market doesn't believe the company is worth the value on its books.
  • A higher market value than book value means the market is assigning a high value to the company due to expected earnings increases.

 


Q1) What is the Life Insurance Corporation of India (LIC)?

LIC  is a government-backed life insurance provider in India. It was established in 1956 after the merger of 245 provident societies and insurance companies. LIC is one of the largest insurance companies with more than 25 Crore clients and offers a comprehensive range of life insurance plans. 

Source: LIC’s exposure to Adani Group is under 1% of total assets under management