Difference Between Passive and Active Investing
Close
Close

Buy a Life Insurance Plan in a few clicks

Now you can buy life insurance plan online.

Kotak e-Term Plan

Protect Your family’s financial future with Kotak e-Term Plan. Know more

Kotak Assured Savings Plan

A plan that offer guaranteed returns and financial protection for your family. Know more

Kotak Guaranteed Savings Plan

A plan that offers long term savings and insurance in one premium. Know more

Kotak e-Invest

Insurance and investment in one plan with Kotak e-Invest. Know more

Kotak Health Shield

Insurance against medical expenses related to heart, brain, liver and Cancer. Know more

Difference Between Passive and Active Investing

Difference Between Passive and Active Investing
  • 26th Apr 2022 |
  • 2,986

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.

Kotak e-Invest

In this policy, the investment risk in the investment portfolio is borne by the policyholder.

Features

  • Return of Mortality Charges*$
  • Enhanced Protection
  • Multiple Plan Options
  • Zero Premium Allocation Charges
  • Tax Savings^

Ref. No. KLI/22-23/E-BB/521

T&C

Browse our library of resources

- A Consumer Education Initiative series by Kotak Life

Similar Articles

Why is Portfolio Diversification Important? How to Diversify Your Portfolio?

How To Track ULIP Performance?

Best Long-Term Savings Plans in India in 2022

Why Should You Consider Guaranteed Savings Plan for Long-Term Investment?

Which is a Better Investment - Mutual Funds Or ULIP?

How to Increase Net Worth Along with Family Protection

How to Start Saving Money in 10 Simple Ways?

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

Asset Allocations in ULIP - Know the Top Benefits

उच्च रिटर्न प्राप्त करने के लिए सर्वश्रेष्ठ इन्वेस्टमेंट विकल्प

How to Manage Inheritance Money?

What are the Best Short-Term Investment Plans with High Returns?

Are Gains from ULIP Sale Taxable?

How to Cancel ULIP Policy?

What are the Best Investment Options for Students in India?

Top 10 Investment Strategies to Create Wealth

Creating a second source of income with life insurance

What is better - Guaranteed Savings Plan or Fixed Deposit?

Debt ULIPs vs. Debt Mutual Funds: What's the Difference?

Why Do You Need A ULIP Plan - All You Need To Know

Things to Know Before Buying an Endowment Plan

What are Deferred Savings Plans?

How to Make Your Financial Portfolio?

What are the Best Investment Options For Females?

What is the Importance of Saving Money?

Learn About Safe Investments with High Returns in India

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

Benefits of ULIP as a Child Insurance Plan

How is Compoud Annual Growth Rate (CAGR) Calculated in ULIP?

Safe Investment Options with High Returns for FY 2018-19

Difference Between Guaranteed Savings Plan and Guaranteed Income Plan

Building wealth through regular investing

Which are the Best Investment Plans for Indian Senior Citizens in 2022?

How to Plan Savings from Salary?

How Much Wealth Can You Create from ULIP in 10 years?

Why Should You Invest in Term Insurance And ULIP?

What is ULIP Renewal?

What is a Savings Plan and What are is Benefits?

Beginner's Guide to Wealth Creation: Meaning, Strategies, & Importance

Endowment Plan vs Fixed Deposit?

What are the Best Investment Options for Beginners or Amateur Investors in India?

What are the Best Investment Options for Young Adults?

How Do One-Time Investment Plans Work?

Do You Know the Difference Between Savings and Investment?

Top 6 Investment Plans Available in India

Customising investments to manage your wealth

Basics of Guaranteed Savings Plan

Difference Between Guaranteed Savings Plan and ULIP

How to Fulfil Your Financial Goals in the Next 10 Years?

ULIP Investment Strategy: Top Tips to Improve Your ULIP Gains

How to Plan your Investment to Achieve Periodic Financial Goals?

Investment Options for NRIs in India

4 Benefits of ULIP Fund-Switching Feature

Who Should Invest in Savings Plan?

Successful Financial Planning for Urban Women

Complete Savings Plan for Low Income Earners

Best One-Time Investment Plans in India

Early Investing and the Power of Compounding

Short Term and Long Term ULIP Plans for Wealth Creation

Planning Financial Goals and Objectives of Financial Planning

4 Important Tips to Maximize Gains with ULIP Investments

ULIP vs FD - Which is Better and Why?

3 Tips to Buy Guaranteed Savings Plan

What's Better for Your Child's Education? Child Plans or Mutual Funds?

ULIP Benefits You Can Avail from Early Investing

Why Should Parents Invest in Endowment Plan?

What are Some of the Safest Investment Options in India?

How To Diversify Portfolio In 2022?

Top 5 Principles That Need to be Followed for Wealth Creation

Investments Options to Buy a house in India

Best Investment Options in India in 2022

How to Plan Your Child's Education - A Step by Step Guide

Best Investment Options to Cover Your Child's Education

How to Manage Your Portfolio Like a Professional?

Savings Plan for Grandchildren

Receiving regular payouts at various stages of life

Top 5 Investment Options in 2022 for Healthy Returns

Is This The Right Time To Invest In ULIP? Why or Why Not?

Important Questions You Must Ask Yourself When Buying a ULIP Plan

Importance of Portfolio Management

Which is Better – FD, Mutual Fund, SIP, or ULIP?

Are Money Back Policies Helpful? A Complete Guide

Different Types of Endowment Plans

Why ULIP is Better Investment for Long-Term Wealth Creation?

ULIP as an Investment for Your Child

What is Fund Switch in ULIP? And ULIP Fund Switching Techniques

What are Tax-Deferred Savings Plans?

Learn About Safe Investments with High Returns in India

ULIP Plan as a Gift

How Does an Endowment Plan Work?

Can ULIP Help in Achieving Short-Term Financial Goals?

Factors Affecting Stock Markets

What are Mutual Funds?