Active Mutual Funds

Active Mutual Funds

Active mutual funds, managed by experts, strive to outperform the market by carefully selecting investments based on extensive research. This approach, however, incurs higher costs compared to passive funds like index funds, which mirror market performance. Therefore, investors should examine the fund’s performance, strategy, and their own risk tolerance before investing.

Content :

What is Active Fund?

An active fund is a type of mutual fund where the fund manager makes specific investments with the goal of outperforming an investment benchmark index. The fund manager uses analytical research, forecasts, and judgment to make investment decisions.

Active Vs Passive Mutual Funds

The main difference between Active Vs Passive Mutual Funds is that active mutual funds aim to outperform the market, whereas passive funds simply aim to mimic the performance of a specific market index.

ParametersActive FundsPassive Funds
Investment GoalAttempts to beat the marketSeeks to replicate the index
Expense RatioHigh due to research and transactionsLower due to fewer transactions
Potential ReturnsPotentially higher returnsReturns typically mirror the index
Risk LevelHigher risk due to investment decisionsLower risk as they follow the market trend
Performance PredictabilityLess predictable performanceMore predictable performance

Features Of Active Mutual Funds

One of the important features of active mutual funds is their active management. That means a fund manager or a team of managers decide how to allocate the fund’s money based on research, market forecasts, and their judgment.

  1. Active Management: The central feature of active mutual funds is the active involvement of fund managers. They frequently buy and sell assets to outperform the benchmark index.
  2. Higher Costs: Due to active management, the expense ratio of active mutual funds is generally higher. These costs include management fees and transaction costs due to frequent buying and selling.
  3. Potential for High Returns: Active funds have the potential for higher returns than the market average, as the goal is to outperform the market. However, this is not guaranteed.
  4. Risk Management: Active funds may have better risk management than passive funds because fund managers can adapt to market changes more quickly. However, this does not mean they are risk-free.
  5. Diversification: Active funds typically have a diversified portfolio, which can help to reduce risk.

Types Of Actively Managed Funds

Actively managed funds come in various types:

  1. Equity Funds
  2. Bond Funds
  3. Balanced Funds
  4. Sector Funds
  5. Index Funds
  6. International and Global Funds
  7. Fund of Funds
  1. Equity Funds: These funds invest primarily in stocks. Managers aim to pick stocks that will outperform the market.
  2. Bond Funds: Also known as fixed-income funds, these invest in bonds and other debt instruments. The goal is to provide steady income to investors.
  3. Balanced Funds: These funds invest in equities and fixed-income securities. The manager adjusts the ratio based on market conditions.
  4. Sector Funds: These funds focus on specific sectors of the economy, such as technology or healthcare. Managers choose securities within that sector for potential growth.
  5. Index Funds: While typically passively managed, some index funds are actively managed, with managers aiming to outperform the index.
  6. International and Global Funds: These funds invest in securities outside the investor’s home country or worldwide.
  7. Fund of Funds (FoFs): A Fund of Funds is a mutual fund scheme that invests its capital into a diversified portfolio of other underlying mutual funds rather than directly investing in stocks, bonds, or other securities. By selecting and combining various funds, each with its own strategy and asset allocation, the FoF manager aims to provide broad diversification and achieve specific investment objectives.

Best Active Mutual Funds In India

Here are some of the best active mutual funds based on their returns.

Fund Name3-year Return (%)5-year Return (%)1-year Return (%)
Quant Tax Plan – Direct Plan – Growth41.04%25.19%20.00%
ICICI Prudential Bluechip Fund – Direct Plan – Growth24.32%14.79%21.80%
Nippon India Multicap Fund – Direct Plan – Growth37.9%17.93%31.68%
Quant Mid Cap Fund – Direct Plan – Growth40.46%23.13%25.86%
Kotak Small Cap Fund – Direct Plan – Growth42.34%22.42%21.13%

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Active Mutual Funds – Quick Summary

  • Active mutual funds are investment funds where fund managers actively manage the portfolio, making decisions on what securities to buy or sell based on extensive research and market analysis.
  • An active fund is a fund where the fund manager actively decides how to invest the fund’s money, aiming to outperform the market.
  • Active and passive mutual funds primarily differ in the level of management involvement. Active funds aim to outperform the market, whereas passive funds aim to mimic the performance of a specific market index.
  • Features of active mutual funds include active management, higher expense ratios due to management fees, the potential for higher returns, and risk due to dependence on the fund manager’s skills.
  • There are various types of actively managed funds, including equity funds, bond funds, balanced funds, sector funds, index funds, international and global funds, and funds of funds. Each type has unique characteristics and strategies, such as investing in large-cap companies, corporate bonds, or a mix of equity and debt instruments.
  • Active funds and passive funds have distinct benefits and risks. The best choice depends on individual investment goals, risk tolerance, and investment horizon.
  • Some of the best active mutual funds include Quant Tax Plan Fund, ICICI Prudential Bluechip Fund, and Nippon India Multicap Fund.
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Active Mutual Funds  – FAQs  

What Is An Actively Managed Fund?

An actively managed fund is a fund where the fund manager actively makes decisions about investing the fund’s money, aiming to outperform the market. The manager uses research, market forecasting, and expertise to make these decisions.

What is an active vs passive fund?

The main difference between active and passive funds is the management style. Active funds are managed by fund managers who actively decide what assets to buy or sell. Passive funds, on the other hand, aim to replicate a market index and require less management.

Which active fund is best?

Here are some of the top active funds in India:

Fund Name3-year Return (%)1-year Return (%)
Quant Tax Plan – Direct Plan – Growth41.04%20.00%
ICICI Prudential Bluechip Fund – Direct Plan – Growth24.32%21.80%
Nippon India Multicap Fund – Direct Plan – Growth37.9%31.68%

Is A mutual fund active or Passive?

A mutual fund can be active or passive, depending on its management style. Fund managers manage Active funds, while passive funds track a specific market index.

Should I invest in passive or active funds?

The choice between investing in passive or active funds depends on your investment goals, risk tolerance, and investment horizon. Active funds have the potential for higher returns but come with higher fees and risks. Passive funds offer lower costs and are less risky but usually yield returns similar to the market average.

Who manages an active fund?

An active fund is managed by a professional fund manager or a team of managers. These managers decide what assets to invest in based on research, market analysis, and their judgment.

What are the pros and cons of active mutual funds?

Active mutual funds offer the potential for higher returns and the ability to protect against market downturns through strategic investment choices. However, they also have higher expense ratios due to active management and carry a risk of underperforming the market if the fund manager’s decisions don’t yield the expected results.

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