When mutual funds When it comes to investing in, many investors do not know which he should choose from active or passive mutual funds? If you also invest in mutual funds or want to start a new SIP, then before investing you must know what is the basic difference between these two. By doing this you will not only be able to choose the right fund but will also be able to get better returns on investment. Let us know what is the basic difference between these two types of funds?
What is active fund?
Active funds are mutual funds managed by professional fund managers who actively decide which stocks, bonds or other securities to buy or sell. Active fund aims to perform better than a specific benchmark index through strategic investment and market time. In other words, the active fund has the flexibility of choosing the investment portfolio within the broader parameters of the investment objective of the scheme in the active fund. Since this increases the role of the fund manager, the cost of running the fund is high. Investors hope that actively managed funds will perform better than the market.
The main features of the active fund
- Professional fund management
- High expansion ratio
- Possibility of more returns
- resilience
- High risk
What are passive funds?
Passive funds, also known as index funds, aims to repeat the performance of a particular market index. Instead of trying to perform better from the market, Passive Fund tries to match the returns of the benchmark index. A passive fund tracking BSE Sensex will buy only the shares that will be included in the BSE Sensex. The ratio of each share in the portfolio of the scheme is also similar to the weight given to the share of BSE Sensex. Thus, the performance of these funds reflects the relevant index. They are not designed to perform better than the market. Such schemes are also called index schemes.
The main features of the passive fund
- Index tracking
- Lower expansion ratio
- Demonstration of index
- Transparency
- low risk
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