Comparing active, passive mutual funds

Mutual fund is an investment by a collective group of individuals sharing a common financial goal like capital appreciation and dividend earnings. It offers a person benefits of investing in diverse portfolio in Indian and foreign stock markets and support of a good research team.

Active mutual funds

Such funds deliver the benefit of diversification and professional management with the help of skilled professionals and a fund manager chosen by the mutual fund house. While investing in it, one needs to be careful about its trait as high expense ratio incurred by the fund escalates the risk as well as cost for the investors. However, if the fund manager is involved in ‘aggressive portfolio’, the level of risk for the investor may aggravate.

Passive mutual funds

Such funds are aligned to specific benchmark indices such as BSE Sensex, BSE Bankex, S&P CNX Nifty and others. The motive of these funds is to showcase the performance of the benchmark indices by investing only in the stocks of the index with the corresponding allocation and respective weightage. These are considered as the main ingredient for retail investors, and hence, if one is not willing to take up very high risk, passive mutual funds are a safer bet.

Assessment parameters for making a decision

There are merits and demerits of both active mutual funds and passive mutual funds, and the debate, as to which one to opt for, is long

... contd.