24. Mutual Funds 3: Active and Passive Management

The terms active and passive management are often used when discussing mutual funds - what do the terms actually mean and what have some people concluded.

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Education

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• stocks
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• mutual
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• active
• passive
• management

[g45454]

very insightful info thank you. I am about to come into a small amount of money, £4000 and was seriosuly considering investing in stocks and shares due to such low interest rates in savings accounts.  I have played with paper stocks for past 6 months, but am now very much thinking of a mutual fund investment. But do you feel a passive managed mutual fund will actually give me a worthwhile return? (sorry for such braod question)

[savingandinvesting]

@g45454 Passive mutual funds can be part of long-term savings plan that also uses tax savings, dollar cost averaging, diversification etc. Index funds can be very key element of such plan. Putting all money into one passive fund at one point in time is not what I mean. If work on premise that providers of capital will be rewarded over long-term for making capital available either as debt or equity, then passive funds can play important role and always possible to do other things in parallel.

[marnold092]

What is your view on not-for-profit mutual funds? How do they fare aginst a passively managed mutual fund in terms of cost and fees?

[savingandinvesting]

Can you provide an example please - there are no-load but not-for-profit not a mainstream product to best of my knowledge.

[EurodanceStrong]

hmm...would a 401k be considered a mutual fund?

[savingandinvesting]

A 401k is an employer-sponsored retirement plan that allows contributions to be made on tax-free basis. So money goes in without paying tax at that time - so it is a structure that allow tax deferral. The moneys in the 401k are then very commonly invested in mutual funds.

[seanbrandri]

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[lvshktorsh]

can someone plz tell me the two major types or categories of mutual funds ?!

[fuckindiacrushindia]

Thanks alot or your cause to educate others in tis emerging important field, many Thanks indeed.

[savingandinvesting]

Overweighting refers to when the fund manager owns more that the weight of that stock in the index (which is the equal weight). Underweighting means owning less than the weight of that stock in the index. Hope this helps - more in book as well. Good question. Best Regards.