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Active Fund

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Key Highlights

  • An active fund is an investment fund where the fund manager actively selects securities and adjusts the portfolio with the objective of outperforming a specified market benchmark.

  • Key features includes active security selection, dynamic portfolio management, benchmark-oriented and higher manager involvement.

What is Active Fund?

An Active Fund is an investment fund where the fund manager actively selects securities and adjusts the portfolio with the objective of outperforming a specified market benchmark. Decisions are based on research, market views, and risk assessment rather than simply tracking an index.

Active funds are commonly used across equity, debt, and multi-asset strategies.

How an Active Fund Works?

The fund manager analyses companies, sectors, and macroeconomic trends to identify investment opportunities. Portfolio holdings may change based on valuations, market conditions, and evolving risks.

Key Features of Active Funds

  • Active Security Selection: Investments are chosen based on research and insights

  • Dynamic Portfolio Management: Allocation changes in response to market conditions

  • Benchmark-Oriented: Performance is measured against a relevant index

  • Higher Manager Involvement: Outcomes depend significantly on fund manager skill

Benefits of Active Funds

  • Potential to outperform the market

  • Flexibility to manage market volatility and downside risk

  • Ability to capture sector or stock-specific opportunities

Considerations and Risks

  • Returns may vary widely across market cycles

  • Performance depends on fund manager expertise

  • Typically involves higher expense ratios than passive funds

Active Fund vs Passive Fund

  • Investment Approach: Active funds aim to outperform a benchmark through research-driven security selection, while passive funds track an index with minimal intervention.

  • Cost Structure: Active funds typically have higher expenses due to active management; passive funds are generally lower-cost.

  • Performance Outcome: Active fund returns depend on fund manager skill, whereas passive fund returns closely mirror market movements.

FAQs on Active Funds

1. Are active funds suitable for all investors?

They are suitable for investors willing to accept performance variability in pursuit of higher returns.

2. Do active funds always outperform the market?

No. Performance depends on market conditions and the fund manager’s decisions.

3. Why do active funds charge higher fees?

Fees reflect research, portfolio management, and active decision-making efforts.

4. Can active funds reduce downside risk?

Yes, skilled managers may adjust exposure during volatile markets, though this is not guaranteed.

5. How should investors choose an active fund?

By evaluating track record, investment philosophy, risk management approach, and consistency.