Mutual funds: Confused between active and passive funds? Know here (2024)

FAQs

Mutual funds: Confused between active and passive funds? Know here? ›

In general terms, active management refers to mutual funds that are actively managed by a portfolio manager. Passive management typically refers to funds that simply mirror the composition and performance of a specific index, such as the Standard & Poor's 500^® Index.

Active funds strive for higher returns and come with higher costs and risks. Passive funds offer steady, long-term returns at lower costs but carry market-level risks. Explore key differences between active and passive funds in this blog.

Active investing requires a hands-on approach, typically by a portfolio manager or other active participant. Passive investing involves less buying and selling, often resulting in investors buying indexed or other mutual funds.

Check your mutual fund status online

Websites of the AMCs as well as the websites of the registrars like CAMS and Karvy will assist investors in checking their fund status using the folio number. It is possible to do a one-time registration on the website and track performance.

Active investments are funds run by investment managers who try to outperform an index over time, such as the S&P 500 or the Russell 2000. Passive investments are funds intended to match, not beat, the performance of an index.

Passively managed funds include passive index funds, exchange-traded funds (ETFs), and Fund of funds investing in ETFs. These funds follow a benchmark and aim to deliver returns in tandem with the benchmark, subject to expense ratio and tracking error.

Active asset management focuses on outperforming a benchmark, such as the S&P 500 Index, while passive management aims to mimic the asset holdings of a particular benchmark index.

When the actor (and the actor can be a person or object) comes before the action in a sentence, you have active voice. When the actor comes after the action or when the actor is completely absent from the sentence, you have passive voice. What are some examples of active and passive voice?

Passive investing targets strong returns in the long term by minimizing the amount of buying and selling, but it is unlikely to beat the market and result in outsized returns in the short term. Active investment can bring those bigger returns, but it also comes with greater risks than passive investment.

Mutual funds come in both active and indexed varieties, but most are actively managed.

How do you know if a fund is a mutual fund? ›

Mutual funds are usually actively managed, although passively-managed index funds have become more popular. ETFs are usually passively managed and track a market index or sector sub-index. ETFs can be bought and sold just like stocks, while mutual funds can only be purchased at the end of each trading day.

Active mutual funds have higher fees compared to passive funds. The fees cover the cost of research and analysis, and expertise of the fund manager. A high cost can erode your returns over time. While active funds primarily aim to outperform the index they are tracking, there's no guarantee that they will do so.

The cost-effectiveness of these funds is notable as they do not incur expenses associated with stock selection, research, or frequent trading of securities. This cost efficiency contributes to the appeal of passive funds as an uncomplicated and economical investment option.

Active management requires frequent buying and selling in an effort to outperform a specific benchmark or index. Passive management replicates a specific benchmark or index in order to match its performance. Active management portfolios strive for superior returns but take greater risks and entail larger fees.