Active Funds Outperform the Passive Funds

In a developing country like India, each day new companies are gaining more ground and are emerging into the power play. When passive funds are dominating the markets of the developed countries, the fund managers in India believe that the active funds are very much relevant in the Indian market and have the potential to outperform the passive funds.

Active funds are typically a type of fund that is managed by a fund manager and his team. With active management, such funds endeavour to beat the index with the help of quality stocks. Unlike passive funds which follow the market index and aren’t managed by a fund manager, in active funds, the managers endeavour to pick the best stocks in the market so that the investor can earn greater revenues by outperforming the standard market index.

Reasons why Active Funds Outperform Passive Funds

 Unlike Passive Funds which is a lazy investor’s strategy to earn returns from the market, investors who want to actively manage their investment in the stock market tend to seek the assistance of professional fund managers and competent brokers to sell and purchase their stocks in the market.

Let’s take a look at the points that highlight why the active fund investors outperform the passive funds:

  • Active funds are actively managed by a portfolio manager and co-managers or a well-knit team of managers who make active investment decisions for the investor.
  • Thorough research, market prediction, experience and skill of the fund manager decides the success of an active fund. The better is your choice of fund manager the more are the chances of outperforming the market.
  • Appointed fund managers pay thorough attention to the changing market patterns, economic factors, political scenario, government policies and other potential factors that tend to have an impact on the fate of active funds before making any investment-related decision.  Such careful practices tend to enhance the scope of earning higher returns than passive funds.
  • The fund managers and his team tend to undertake additional market risks to garner steady and higher returns to outperform the market. Through their skills and thorough knowledge of the market scenario, they make investment decisions that are in favour of active fund investors most of the time.
  • Passive funds aren’t managed by professionals and lie entirely on the whim and fancies of the investors and the market. Most investors aren’t well equipped with the market knowledge and lack the skill to manipulate their funds as per the changing market to perform better than active funds.

In simpler terms, active funds tend to outperform a specific market index, while passive funds tend to copy the investment components of a specific market index. Before trusting a fund manager with your investments, make sure that they are equipped with the skills to outperform the market and charge a reasonable fee for the same. Consult our team of professional fund managers to avail the best professional help when it comes to investing in active funds.

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Past performance is not an indicator of future returns. Wealth Redefine is a AMFI registered Mutual Fund distributor – ARN - 167127

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