Active and Passive Equity Funds

According to a new study, active equity funds witnessed higher net inflows than passive equity funds in the Q2 of FY24.

Equity fund – It is a mutual fund that invests principally in stocks and thus called as stock funds which generally carry a high risk for long-term investments but can yield substantial returns over time.
These are categorized into small, mid, and large-cap based on the size of the company.

A mutual fund collects money from investors and invests the money, on their behalf, in securities (debt, equity or both).

	Active Equity Funds	Passive Equity Funds
Fund Manager’s Role in stock selection	Active	Passive
Expense ratios	Higher	Lower
Portfolio management	Driven by different strategies	Driven by benchmark index
Trading Frequency	Higher	Lesser
Capital Gains Tax	Higher	Lesser
Returns	Relatively higher	Lesser
Applicability	For investors favouring fund managers’ alpha generation potential	For investors who want to allocate exactly as per market index
Examples	ELSS (equity linked saving scheme)	Index mutual funds, Exchange-Traded Funds (ETFs)

Expense ratio is the annual maintenance charge levied by mutual funds to finance its expenses that includes annual operating costs, including management fees, allocation charges, advertising costs, etc. of the fund.

Capital gains taxes are owed on the profits from the sale of most investments if they are held for at least 1 year.

Source:

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