- Date : 08/02/2023
- Read: 4 mins
There are many options for one to think about investing in mutual funds, and all the funds fall under one of the two umbrellas that are passively managed or actively managed funds. According to analysts, actively managed funds are generally better for investing as they have the potential to generate higher returns because of expert techniques and a hands-on approach.
Learn more about the differences between actively managed and passively managed mutual fund schemes and which can provide you with a higher rate of return.
Also Read: Active or Passive investing!
Difference between an actively managed scheme and a passively managed scheme
Investment plans that have been actively managed involve the money manager actively purchasing and disposing of assets to exceed a particular earnings benchmark. The fund manager makes financial decisions using their knowledge, research, and assessment with the intention of making more money than the benchmark index. Contrastingly, passive investment strategies retain a collection of assets that strongly resemble the index's asset allocation in an effort to duplicate the performance of a given stock index.
Active management is much more expensive since it requires a fund manager to perform additional research and analysis before making a purchase. In the end, superior managerial fees for shareholders arise from the time and resources needed for this study and evaluation. Active management costs are also increased by the multiple asset purchases and sales required by active managers to surpass the market index.
On the other hand, passive management is a more inexpensive strategy because the money manager merely maintains an investment portfolio that strongly resembles the benchmark index. As a result, less time is spent on study and analysis, and the fund manager doesn't have to purchase and dispose of assets as frequently. Therefore, passive management charges clients lower fees and expenses.
Some examples are:
Actively managed schemes on the basis of their returns:
- Franklin India Bluechip Fund: This actively managed scheme has generated an annualized return of 17.7% since its inception in 1993.
- ICICI Prudential Bluechip Fund: This scheme has generated an annualized return of 19.1% since its inception in 2005.
- SBI Magnum Multicap Fund: This actively managed scheme has generated an annualised return of 15.3% since its inception in 2011.
- HDFC Top 200 Fund: This actively managed scheme has generated an annualized return of 17.4% since its inception in 2000.
- Mirae Asset India Opportunities Fund: This scheme has generated an annualized return of 18.2% since its inception in 2009.
Passively managed schemes on the basis of their returns:
- SBI Magnum Taxgain Fund: This is an equity- oriented passively managed scheme that has been providing an annual return of 8.14% since its inception in 1993.
- ICICI Prudential Nifty Index Fund: This is an index- linked passively managed scheme that has provided an annual return of 9.63% since its inception in 2011.
- UTI Nasdaq 100 Fund: This is an index- linked passively managed scheme that has provided an annual return of 11.13% since its inception in 2010.
- HDFC Balanced Fund: This is an equity- oriented passively managed scheme that has been providing an annual return of 9.56% since its inception in 1995.
- Reliance Top 200 Fund: This is an equity- oriented passively managed scheme that has been providing an annual return of 8.51% since its inception in 1995.
Which mutual fund scheme can generate higher returns for the investor?
Actively managed mutual fund schemes always had the opportunity to generate better return than passive ones in terms of overall performance. This possibility of greater returns is not assured, however, and in reality, several actively managed schemes fall short of exceeding their benchmark indices. In actuality, research shows that most actively managed funds score worse than their market index over the long term. This is due to the fact that active managers find it tough to regularly discover inexpensive investments and accurately forecast market trends.
On either hand, passive mutual fund schemes often improve in pace with their respective market index. They won't outperform the benchmark index, yet they also won't underperform it. Additionally, passive funds tend to exhibit less variability, which could also make them a good alternative for cautious investors.
Also Read: Best tax saving mutual fund scheme to invest in!
Final words
Although actively managed schemes have the potential to produce larger returns than passive ones, they also carry a greater risk, and, many actively managed funds fail miserably to beat their benchmark indexes. Whereas passive funds do not frequently outperform their benchmark indices and have less instability, making them a better choice for risk-averse investors.
Disclaimer: This information should not be considered as investment or legal advice and is only meant to provide general information. When drawing conclusions, you must seek independent advice separately.
Learn more about the differences between actively managed and passively managed mutual fund schemes and which can provide you with a higher rate of return.
Also Read: Active or Passive investing!
Difference between an actively managed scheme and a passively managed scheme
Investment plans that have been actively managed involve the money manager actively purchasing and disposing of assets to exceed a particular earnings benchmark. The fund manager makes financial decisions using their knowledge, research, and assessment with the intention of making more money than the benchmark index. Contrastingly, passive investment strategies retain a collection of assets that strongly resemble the index's asset allocation in an effort to duplicate the performance of a given stock index.
Active management is much more expensive since it requires a fund manager to perform additional research and analysis before making a purchase. In the end, superior managerial fees for shareholders arise from the time and resources needed for this study and evaluation. Active management costs are also increased by the multiple asset purchases and sales required by active managers to surpass the market index.
On the other hand, passive management is a more inexpensive strategy because the money manager merely maintains an investment portfolio that strongly resembles the benchmark index. As a result, less time is spent on study and analysis, and the fund manager doesn't have to purchase and dispose of assets as frequently. Therefore, passive management charges clients lower fees and expenses.
Some examples are:
Actively managed schemes on the basis of their returns:
- Franklin India Bluechip Fund: This actively managed scheme has generated an annualized return of 17.7% since its inception in 1993.
- ICICI Prudential Bluechip Fund: This scheme has generated an annualized return of 19.1% since its inception in 2005.
- SBI Magnum Multicap Fund: This actively managed scheme has generated an annualised return of 15.3% since its inception in 2011.
- HDFC Top 200 Fund: This actively managed scheme has generated an annualized return of 17.4% since its inception in 2000.
- Mirae Asset India Opportunities Fund: This scheme has generated an annualized return of 18.2% since its inception in 2009.
Passively managed schemes on the basis of their returns:
- SBI Magnum Taxgain Fund: This is an equity- oriented passively managed scheme that has been providing an annual return of 8.14% since its inception in 1993.
- ICICI Prudential Nifty Index Fund: This is an index- linked passively managed scheme that has provided an annual return of 9.63% since its inception in 2011.
- UTI Nasdaq 100 Fund: This is an index- linked passively managed scheme that has provided an annual return of 11.13% since its inception in 2010.
- HDFC Balanced Fund: This is an equity- oriented passively managed scheme that has been providing an annual return of 9.56% since its inception in 1995.
- Reliance Top 200 Fund: This is an equity- oriented passively managed scheme that has been providing an annual return of 8.51% since its inception in 1995.
Which mutual fund scheme can generate higher returns for the investor?
Actively managed mutual fund schemes always had the opportunity to generate better return than passive ones in terms of overall performance. This possibility of greater returns is not assured, however, and in reality, several actively managed schemes fall short of exceeding their benchmark indices. In actuality, research shows that most actively managed funds score worse than their market index over the long term. This is due to the fact that active managers find it tough to regularly discover inexpensive investments and accurately forecast market trends.
On either hand, passive mutual fund schemes often improve in pace with their respective market index. They won't outperform the benchmark index, yet they also won't underperform it. Additionally, passive funds tend to exhibit less variability, which could also make them a good alternative for cautious investors.
Also Read: Best tax saving mutual fund scheme to invest in!
Final words
Although actively managed schemes have the potential to produce larger returns than passive ones, they also carry a greater risk, and, many actively managed funds fail miserably to beat their benchmark indexes. Whereas passive funds do not frequently outperform their benchmark indices and have less instability, making them a better choice for risk-averse investors.
Disclaimer: This information should not be considered as investment or legal advice and is only meant to provide general information. When drawing conclusions, you must seek independent advice separately.
