Active vs Passive Mutual Funds: Which is the Better Choice for You?

Charlotte Miller

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In India, mutual funds are a popular investment option due to their convenience, cost-effectiveness as well as diversification benefits. Moreover, one can easily start an investment with just a small amount of money and benefit from professional management of their investments. 

In the current era of digitalization, investing in the same is as easy as ordering groceries from your smartphone. You just need the right app, an internet connection, and you are good to go. 

(Tip: Do your thorough research and search “best mutual fund to invest today”. Take a wise decision.)

What are mutual funds?

As the name suggests, mutual funds are investment vehicles that basically pool money from multiple investors and invest it in a diversified portfolio of securities such as stocks, bonds, and other assets. The money is managed by professional fund managers who allocate the investments based on the investment objective of the mutual fund. 

These are regulated by the Securities and Exchange Board of India (SEBI) and are available in various types, such as debt funds, equity funds, balanced funds, sector funds etc. The investors here can choose a mutual fund based on their investment goals, risk tolerance, and investment horizon. 

(Note: Don’t forget to use a mutual fund calculator before investing.)

What is the difference between Active and Passive Mutual Funds?

These are two different investment strategies mutual fund managers use to manage the investments in their portfolios. 

When it comes to the active mutual funds these are managed by professional fund managers who participate actively in order to buy and sell securities in an attempt to outperform the market or a benchmark index. 

This professional is responsible for researching and analyzing the market to identify the best investment opportunities and tries to make investment decisions that’ll lead to higher returns for those who invested their hard-earned money. 

On the other hand, passive mutual funds track a specific index, such as the Nifty 50 or the BSE Sensex. This scheme aims to replicate the performance of that index basically by investing in the same securities in the same proportion as the index. It is pertinent to note that these type of funds are managed by following a set of rules and don’t require active research or analysis. 

Which is the better choice for you?

In my personal opinion, one should look for the best mutual funds to invest today for long term and do thorough research to understand the pros and cons of each approach. Furthermore, then one should choose that aligns with the objective of the investment and risk profile. 

When it comes to choosing between the two, it totally depends on the potential investor’s goals, risk tolerance, and beliefs about the markets.

How to invest in mutual funds?

I’m not promoting any organization, but I’ve been using the Bajaj Finserv for over a year now. Believe me, it is one of the best applications to use to invest in mutual funds. Also, it offers a mutual fund calculator to plan everything in the best manner. 

  1. Download the application from the App Store (iPhone) or Play Store (Android)
  2. Sign up with your mobile number
  3. Go to the Mutual funds under the Investment Bazaar section
  4. Proceed as per your requirement