Active Funds:

In an Active Fund, the Fund Manager is in charge of making decisions regarding the buying, holding, or selling of the underlying securities and in making stock selections. Active funds employ distinct strategies and techniques to construct and regulate the portfolio. The investment strategy and style are initially outlined in the Scheme Information Document (offer document). Active funds expect to gain higher returns (alpha) than the benchmark index. The risk and return in the fund are contingent upon the strategy employed. Active funds carry out strategies to deliberately “choose” the stocks for the portfolio.

Passive Funds:

In a Passive Fund, the fund manager does not make any decisions regarding stock selection or buying, holding, or selling. Rather, the fund manager’s role is passive, and they simply replicate the stated Index or Benchmark, such as an Index Fund or Exchange Traded Fund (ETF), with minimal tracking error.

Exchange Traded Funds (ETFs):

ETFs are investment funds that track a benchmark index, like a stock market index or a commodity index, in a passive manner. Once investors buy units of the ETF in a New Fund Offer (NFO), the units are credited to their demat accounts and can be bought and sold on the stock exchange in real time, with prices determined by changes to the underlying index.