The importance of being active couldn't have been explained better. To put it simply, one needs to be active in his or her daily life, if one desires to succeed. An active mind always helps in making sound decisions which otherwise (if you are not active) could lead to chaotic situations (one does not make the right decision).
On the other hand if you remain passive (i.e. not active) in whatever you do, you will surely see yourself at the losing end.
Now, that you are aware of how important it is to be active, make sure that your investments are active in generating long term growth in order to make you wealthy as well as healthy.
While investing in mutual funds too, you investors need to be careful while selecting the right mutual funds according to your ability to bear risks. You need to keep in mind that while there are mutual fund schemes which are actively managed in order to outperform their respective benchmarks and provide a phillip to your returns, there are some passively managed funds too, with an aim to mimic or imitate their benchmarks in terms of returns and composition.
Let us probe further into this.
Actively managed mutual funds
Actively managed mutual funds or diversified equity schemes as we call them are always on a constant look out for opportunities across various market segments in order to generate superior returns with sole intention to beat their selected benchmark indices. The fund managers actively participate in managing these funds in order to provide superior returns; while at the same time intend to minimize the associated risks.
Advantages:
· Superior returns
· Diversification across various sectors and market capitalizations
· Flexibility and liberty to change investment style and strategy to minimize risk or boost funds performance
Disadvantages:
· Medium to high to very high risk profile
· High transaction cost and expenses
Passively managed funds
On the other hand passively managed funds or Index Funds or Index Exchange Traded Funds (ETFs) imitate their respective benchmarks in terms of composition and returns. Their sole objective is to mirror the performance of their respective benchmark indices. Over here the fund managers are not as active as they are in managing diversified equity funds, but let the fund perform in line with the respective index.
Advantages:
· Low transaction cost and expenses
· Market related risks
· No need to actively track the performance
Disadvantages:
· No flexibility to change investment style and strategy to minimize risk or boost funds performance
· Limited investment universe
· Less diversification across market capitalizations
Why are we here talking about active and passive funds, when our intention was to enlighten you about Diversified Equity Funds and Equity Exchange Traded Funds
Well, Diversified Equity Funds are actively managed funds and Equity ETFs are mostly passively managed funds but some fund managers are trying to make these ETFs actively managed by using re-allocation strategy but holding stocks from the selected Index itself.
As Equity ETFs despite being passively managed are soon catching the eyes of the investors with some recent innovative launches and ease to trade, so here we are going to talk about Equity ETFs and nothing about Index funds which continue to hold their old passive management style.
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Also, know how to buy mutual funds online:
Invest in DSP BlackRock Mutual Funds Online
Invest in Reliance Mutual Funds Online
Invest in HDFC Mutual Funds Online
Invest in Sundaram Mutual Funds Online
Invest in Birla Sunlife Mutual Funds Online
Invest in UTI Mutual Funds Online
Invest in SBI Mutual Funds Online
Invest in Edelweiss Mutual Funds Online
Invest in IDFC Mutual Funds Online
