Active or Passive Mutual funds: How to Make Right Investment Choice
For investing in Mutual funds, you can either take a proactive approach by choosing and managing the assets in your portfolio or be more relaxed and make your investments grow without frequent changes. This difference is very important when investing in mutual funds, which can be managed either actively or passively.
The main difference between these two approaches lies in the management style, cost, risk, and transparency; each provides unique benefits and challenges:
Actively Managed Funds:
These funds are generally managed by professional managers who actively adjust and select the securities in the portfolio and consider factors like market performance, company fundamentals, and macroeconomic trends.
This fund requires different skills in analyzing and forecasting market movements. The primary goal of fund managers is to overcome the market benchmark and their active involvement, research, and expertise, which typically result in higher fund management fees.
Passively Managed Funds:
These funds do not need active management. Instead, they track the market index and reflect its performance. The securities in passively managed funds are held in the same proportion as the index; these funds can only be bought or sold to align with the changes in the index.
Passive Managed Funds don’t demand constant monitoring or specialized skills, which is why the management fees for passively managed funds are generally lower than actively managed funds.
