Investment
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Active Fund vs Index Fund
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Active managers try to beat the benchmark. Index funds track it cheaply. The expense ratio decides.
Visual Comparison
Key Differences
| Feature | Active Fund | Index Fund |
|---|---|---|
| Management | Active — fund manager selects stocks | Passive — tracks index (NIFTY/SENSEX) |
| Expense ratio | 0.5–2% p.a. | 0.1–0.2% p.a. |
| Returns | Can beat/underperform index | Mirrors index returns |
| Risk | Manager risk + market risk | Market risk only |
| Ideal for | Investors seeking alpha | Cost-conscious long-term investors |
When to Choose Which
Choose Active Fund
- You believe in the fund manager’s track record
- Mid/small cap funds where alpha is possible
- Short to medium term (3–7 years)
- Thematic/sectoral bets
Choose Index Fund
- 10+ year investment horizon
- You want market returns at minimum cost
- Passive, no-fuss investing
- Building a core portfolio
Frequently Asked Questions
Studies show 70–80% of active large-cap funds underperform their benchmark index over 10 years, primarily due to higher expense ratios.
A mutual fund that replicates a market index like NIFTY 50 or SENSEX, holding the same stocks in the same proportions.
The difference between index fund returns and the actual index. Lower is better. Most good index funds have tracking error below 0.1%.
Index funds carry market risk but are diversified across 50–500 stocks. They are transparent, low-cost, and SEBI-regulated.
NIFTY 50 index funds from major AMCs (UTI, HDFC, SBI, Axis) with lowest tracking error and expense ratio are generally recommended.