Any fund which is actively managed by a fund manager is known as an active fund. The fund manager actively takes decisions on how to invest a fund’s capital and does the trading of stocks. The primary job of an active fund manager is to brainstorm and pick profitable investments, intending to execute a stock that outperforms the fund’s specified benchmark or index. Actively managed funds generally charge relatively high fees, because together with analysts and researchers, fund managers actively buy, hold and sell stocks to achieve maximum returns.
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Any fund which is actively managed by a fund manager is known as an active fund. The fund manager actively takes decisions on how to invest a fund’s capital and does the trading of stocks.
What is an Active Fund?
Pros & Cons of Active Fund
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Benefits of investing in active funds
A fund manager’s expertise, experience, and judgment are employed by investors in an actively managed fund. An active manager who runs an automotive industry fund might have extensive experience in the field and might invest in a select group of auto-related stocks that the manager concludes are undervalued.
Active fund managers have more flexibility. There is more freedom in the selection process than in an index fund, which must match as closely as possible the selection and weighting of the investments in the index.
Actively managed funds allow for benefits in tax management. The flexibility in buying and selling allows managers to offset losers with winners.
The ability to outperform: Studies show that most actively managed funds underperform passive funds over the long haul, primarily because of the difference in fees. But it’s a mistake to categorize all active funds as too costly to outperform.
Credit smarts: The advantage of active funds over passive funds can be debated in stocks, but there is one corner of the asset management industry where almost everyone agrees active management is better: bonds and fixed-income investments.
Active funds can be opportunistic: Passive funds typically employ rules-based investment strategies in which investments are effectively picked by a checklist. These rules generally work, but when everyone rushes into one popular trade, it can create some imbalances that wouldn’t necessarily happen if passive funds played a smaller role in the market.
One of the safest funds that provide a reasonable rate of return
Invests in different asset classes for a diversified portfolio
Debt fund that invest in government securities
Fund that primarily invests in stocks
Importance of active funds
There is plenty of controversy surrounding the performance of active managers. Their success or failure depends largely on which of the contradictory statistics is quoted.
Over the 10 years ended in 2017, active managers who invested in large-cap value stocks were most likely to beat the index, outperforming by 1.13% on average per year. A study showed that 84% of active managers in this category outperformed their benchmark index before fees were deducted.
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