Passive funds for active mutual fund investors

The primary goal of an active mutual fund is to beat the index. To achieve that goal, fund managers use their stock-picking skills and subjective judgement while building the portfolio.

But the stock market is no pushover. All fund managers don't beat the index. So, in both good and bad times, a fund could lag the index by a big margin!

Moreover, different investors have different risk appetites. If you are happy getting the index's return and don't want to depend too much on the fund manager's discretion, then look no further. This is where passive funds can be of great help.

Passive funds simply track an underlying index and seek to generate returns as per that. They comprise index funds and exchange-traded funds/fund of funds.

For instance, the Nifty 50 Index consists of India's biggest listed companies in terms of market capitalisation. By investing in passive funds tracking such an index, you may get the broader market return.

By parking a part of your corpus in passive funds you may be able to minimise negative surprises.

The views expressed here constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. The data/information/opinions are meant for general reading purposes only and are not meant to serve as a professional guide/investment advice for the readers. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investments. An investor education and awareness initiative by Mirae Asset Mutual Fund. All Mutual Fund investors have to go through a one-time KYC (Know Your Customer) process. Investors should deal only with Registered Mutual Funds (RMF). For further information on KYC, RMFs and procedure to lodge a complaint in case of any grievance, you may refer the Knowledge Center section available on the website of Mirae Asset Mutual Fund.

Mutual fund investments are subject to market risks, read all scheme related documents carefully.

This article was originally published on March 20, 2024.