Active vs. Passive Management

Active vs. Passive Management

Investors have 2 main investment strategies that can be used to generate a return on their investments account.

They are as follows:

1) Active Portfolio Management

• This strategy focuses on outperforming the market compared to a specific benchmark
• Here the role of fund managers is extensive who keep track of all your investments and they are responsible for generating returns for you.
• A high management fee is charged in this case since your money is being handled by professional persons who keep a check on factors such as market trends, shifts in the economy, and changes to the political landscape etc.
• The managers feel that with their extensive knowledge it is possible to outperform the market and generate superior returns for the investors.

2) Passive Portfolio Management:

• It involves the creation of a portfolio allocation that is same as a specific index.
• It is basically called value buying and holding such as buying Nifty 50 index stocks and holding it.
• There is not much scope for a fund manager in this case.
• There is very less investment such as fees which needs to be paid to the role of a fund manager is very less.
• Thus, the return generated is based on the performance of the stocks in that particular index.