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Actively managed funds vs index funds
Actively managed funds vs index funds is an important consideration if you are planning on investing, because each type has advantages and drawbacks. Knowing what these are for both fund types will help you make the right investment decision for your specific investment goals and circumstances. Actively managed funds are just what they sound like, the fund has a manager who makes fund decisions in an attempt to do better than the market, by actively making choices about which investments to purchase, hold, and sell for the fund. An analysis is performed by the fund manager, using in depth techniques and methods, which can involve numerous investment options. The goal of the actively managed funds is to perform better than the specific market index the fund is being compared with.
Index funds are not actively managed, and are considered funds which are passively managed funds. With these funds the fund manager will try to copy the index performance by creating a fund portfolio which includes most if not all of the same holdings which the index is made up of. The goal of index funds are to try and get the same returns as those seen by the index. Instead of having numerous trades which occur frequently, which is active management, index funds assemble the portfolio following the index holdings and then hold on for the long run with most of the portfolio holdings. Long term growth and portfolio diversity to minimize risks are the key advantages of index managed funds. The theory is that small gains and less volatility is better than big risks and high market volatility.
When it comes to choosing actively managed funds vs index funds every investor will differ, and what is the right choice for another investor may not be the right choice in your situation. Many investors prefer index funds because they are considered a safer and less risky option in many cases, but there are many index funds out there, and each one will have differing returns, risks, and holdings. Proper research and a thorough evaluation of each fund regardless of the fund type will help you choose the right funds for your investment capital. Actively managed funds seem attractive, because they try to outperform index funds, but there is not a lot of evidence to show that these funds perform better than index options.
Actively managed funds vs index funds is a choice that all investors must make, and you will need to look at the advantages and drawbacks of each type and then choose which one fits best with your investment strategies, goals, and acceptable risks. You may choose either type and make the right choice for your specific investment circumstances, or choose the wring funds which happen to the the type you are looking for. Look at the past fund performance and returns, as well as the fund manager and relevant information concerning this factor. The choice between actively managed funds vs index funds is just one of the variables you will need to look at to determine the right fund choices for your hard earned capital.
The information supplied in this article is not to be considered as medical advice and is for educational purposes only.
|Mutual Funds Investment7 Jun 2010|