Published on 6 October 2016

Passive Vs Active Funds: What is the difference?

There are various kinds of funds that you can invest in. You could choose to manage your own funds or you may choose to have a fund manager. There are funds managed by banks, financial services companies, independent fund managers and there are special investment schemes designed by various institutions. You may invest in stocks, indices, specific commodities, foreign exchange or you can choose mutual funds and other types of managed or unmanaged funds. Most funds can be classified as active or passive funds. There are similarities between active and passive funds but it is the difference that calls for attention.

Active Funds: Explained!

Imagine a particular amount that you wish to invest in and pick an index of your choice. You could choose any index of any country. You may also choose global indices. If the fund you choose to invest in is managed by an expert and he or she tends to make manoeuvres from time to time, such as buying and selling or even withholding or future trading, to make you more money than you would make normally, then it is classified as an active fund. Active funds are managed to facilitate more profits than what you would make if you didn’t touch the fund and allowed the investments to bear the returns by default. Active funds are designed to predict the markets and respond or proactively take a step to make more money.

While active funds can make you more money, it is not always assured to get you higher returns.

Passive Funds: Explained!

When you choose a fund that doesn’t require a fund manager or even your involvement to proactively buy and sell, withhold or trade in futures, it is a passive fund. The fund remains untouched and appreciate as the index or the specific stock appreciates. If the index or stock depreciates, then the fund will depreciate. With most passive funds, the associated costs are very low and also demand less attention. You can choose passive funds but your investment may not have a staggering chance of earning you a fortune overnight.


Other Blogs

8 November 2016
What is an interest-only loan
Every loan has a declared rate of interest. The interest could be a fixed rate or floating. It could be a combination as well, fixed for a few years and then adjustable as per the prevailing lending rates in the market. All standard loans are re-paid over a period and every instalment has a bit […]
Read More
1 November 2016
What is bad debt and what is good debt?
Debt is unavoidable. All of us have debts. For some people, the debts are simple obligations like utility bills. For many, it would be a credit card bill. From mortgage to paying back the student loan, people have myriad types of debts. It is almost impossible to avoid debts. Even the billionaires of the world […]
Read More
25 October 2016
What does it mean to have a guarantor on your mortgage?
Buying a home is difficult. Buying a home when someone is very young is all-the-more challenging. Young professionals may be able to pay the instalments of the mortgage but saving enough to make the down payment is an uphill task. When one is in their twenties or even early thirties living in the city or […]
Read More