Difference Between Passive and Active Investing
Close
Close

Buy a life insurance plan in a few clicks

Now you can buy life insurance plans completely online right here.

  • Icon for Kotak Preferred e-Term Plan

    Kotak e-Term Plan

    Kotak e-Term Plan is a pure term plan that provides a high level of protection to your loved ones in your absence.

  • Kotak E-Invest Plan

    Kotak e-Invest is a comprehensive Unit Linked Life Insurance Plan that can be customized as per your goals and needs - be it protection; investment; financial security for child or retirement planning.

  • Icon for Kotak Guaranteed Savings Plan

    Kotak Guaranteed Savings Plan

    Kotak Guaranteed Savings Plan is a savings and protection plan that helps you achieve long-term financial goals and insurance cover against any eventuality.

  • Icon for Kotak Preferred e-Term Plan

    Kotak Lifetime Income Plan

    Kotak Lifetime Income Plan gives you the assurance of your income continuing throughout your life and in your absence throughout the lifetime of your spouse!

  • Icon for Kotak Preferred e-Term Plan

    Kotak Health Shield

    The Kotak Health Shield Plan helps secure your finances in times of sudden medical expenses related to illness such as Cardiac, Liver, Neuro and Cancer (all early and major stages of illness /conditions of Cancer); along with offering protection for Personal Accident - in case of accidental death or disability.

Close

Get a Call

Enter your contact details below and we will get in touch with you at the earliest.

  • Select your Query

Thank you

Our representative will get in touch with you at the earliest.

Back

Difference Between Passive and Active Investing

BUY ULIP PLAN NOW
  • 26th Apr 2022
  • 2,675

Difference Between Passive and Active Investing

There are two ways to manage your mutual fund portfolios: Actively and Passively. Mutual fund portfolio management refers to how the fund manager handles the underlying assets (equity, debt, gold, etc.). Handling the portfolio asset means the fund manager buying and selling the portfolio assets. However, it is important to understand the difference between active and passive investments to get a clearer insight into how the funds are managed. This will give you more clarity on the type of policy you would like to opt-in the future as per your financial goals.

In this article, you will learn what is active vs passive investment and how active and passive investments are different from each other. In addition, you will know which passive and active strategies are followed in investment, along with other details regarding active trading vs passive trading.

To understand the core difference between active and passive investment, you will need to understand the core functioning of active trading vs passive trading.

What is an Active Investment?

Active investing refers to the fund actively managed by the fund manager of the policy or plan you have invested in. In this type of investment, the fund manager has overall control and can manage the buying and selling of the portfolio assets and is highly involved in selecting stocks and bonds to be included in the portfolio. Basically, in active investing, the fund manager has greater control of the policy matters.

What is a Passive Investment?

Passive investing refers to the funds that the fund manager is passively managing. The fund manager has no role and is not involved in investment decisions. In this type of investment, the insurance company takes ownership of all the policy and plan matters and manages the strategies themselves.

Having understood the basic difference between passive and active strategies, you must now have a much deeper understanding of active vs. passive investment.

Active vs. Passive Investment- Advantages and disadvantages

Let’s look at the advantages and disadvantages of Active vs. Passive Investment to understand what will fit correctly into your investment goal.

Advantages

Active investment

  • Flexibility: Highly flexible and gives you more control of your policy.
  • Hedging: Options of hedging the best bets using different techniques.
  • Tax management: This allows you to manage your resources and thus trim your capital gains taxes.

Passive investment

  • Low fees: Service and management fees are very low.
  • Transparency: The index fund assets are mentioned.
  • Tax-efficient: The strategy used does not result in very high capital gains.

Disadvantages

Active investment

  • Very expensive: The service and management fund fees are high.
  • Active risk: Directly linked to market products

Passive investment

  • Too limited: Limited to low risk and specific index managed by the insurer.
  • Small returns: The returns are small as the money is invested in safe and low-risk funds.

Active vs Passive Investing: A Comparison

Active Investment

Passive Investment

Strategy

Fund managers are in control and manage the fund at their discretion.

The insurance company is in charge of everything.

Expense ratio

High

Medium to low

Returns

Fund managers can manage high returns

Low

Risk

Very High

Minimal to no risk

Deeper knowledge and a clear understanding of each investment type is of utmost significance to ensure proper portfolio management. With a better understanding and clarity on what active and passive investment means, you can now determine how you would want your portfolio management to take place.

- A Consumer Education Initiative series by Kotak Life

Also read

  • Planning for Your Child's Higher Education? Explore These Investment Options

    Here are 5 investment options that will help you to increase the fund and provide a substantial corpus for your child's higher education.

    Read more
    • 29th Apr 2022
    • 82

    Best One-Time Investment Plans in India

    Here is a list of best one-time investment plans for wealth creation, portfolio diversification and incremental growth. Know which investment plans s...

    Read more
  • How Can a Legal Nominee Claim ULIP Benefits are the Policyholder’s Death?

    Know how to claim ULIP benefits after the policyholder’s death if you are the legal nominee. The life insurance claim is tax free under Section 10 (...

    Read more

Related Plans

  • Kotak Assured Income Accelerator

    Kotak Assured Income Accelerator

    Kotak Assured Income Accelerator ensures that you get Guaranteed Income every year on the same amount of savings and that the Guaranteed Income increa...

    Know more
  • Kotak e-Term Plan

    Kotak e-Term Plan

    Kotak e-Term Plan is a pure term insurance plan that provides a holistic life protection at affordable prices. Find out the eligibility criteria, key ...

    Know more
  • Kotak Assured Return Employee Benefit Plan

    Kotak Assured Return Employee Benefit Plan

    Kotak Assured Return Employee Benefit Plan is an insurance plan designed for Employers /Trusts, Employer – Employee groups who wants experts to mana...

    Know more
  • Kotak e-Invest

    Kotak e-Invest

    Kotak e-Invest - a comprehensive Unit Linked Life Insurance Plan that can be customized as per your goals and requirements.

    Know more