Which funds are better - Actively or passively managed funds?
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To understand which option is better, we need to understand what both the funds actually are and what their features are.
Actively managed funds:
It either uses single manager, co-managers, or a team of managers to attempt to outperform the market and produce better than passively managed funds. Portfolio managers involved in active investing pay close attention to market trends, shifts in the economy, changes to the political landscape, and factors that are likely to affect specific companies.
This sort of investment holds greater opportunity to maximize your return potential.
These investments respond quickly to potential market downturns.
They have comparatively higher fees involved.
Passively managed funds:
Under this, the fund manager tries to mimic some benchmark, replicating its holdings and even performance. The purpose of index funds or passively managed funds is to generate a return that is same as chosen index instead of outperforming it. It does not have a management team making investment decisions and can be structured as an exchange-traded fund (ETF).
These investments involve lower fees.
Are easy to understand and offers a safer approach to investing in broad market segments.
Both the funds have their own features. But, passively managed funds are considered better because it has lower risk associated with it, is easy to understand and the cost involved is also far less than that of actively managed funds.
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