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Mutual Funds - What are passive funds and what makes them low-cost options?

05 Feb 2019

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Passive funds invest in a portfolio that replicates a market index such as the Nifty, the Sensex or any other broad market or sectoral index. The securities held and their proportion in the portfolio will be the same as the index the fund tracks.

These funds aim to deliver returns in line with the index. The portfolio of a passive fund changes only when the constitution of the index changes. Investors buy passive funds when they want returns in line with the market, at low costs and without the risks associated with the fund manager’s decisions on what stocks to buy and how much exposure to take in these securities. Since there are no costs involved in researching and selecting stocks, passive funds have low expense ratios.

Passive funds are of two types. Index funds are structured like an open-ended scheme where investors buy and redeem units directly from the mutual fund at the applicable net asset values (NAV). Exchange-traded funds (ETF) too invest in a portfolio of securities that duplicates an index. Units of an ETF are mandatorily listed on a stock exchange and investors buy and sell units at real-time prices through their demat account. The price at which ETFs trade are linked to its NAV and the demand and supply of units in the market.

Source: Live Mint BACK

To be added soon

Priyanshu B. Tanna

SEBI registered IFA

ARN119467 & EUIN E-183966

To be added soon

Bharat Tanna

SEBI registered IFA

ARN26176 & EUIN E-044509

To be added soon

Kundan B. Tanna

SEBI registered IFA

ARN294073 & EUIN E-553599

Risk factor

Risk Factors – Investments in Mutual Funds are subject to Market Risks. Read all scheme related documents carefully before investing. Mutual Fund Schemes do not assure or guarantee any returns. Past performances of any Mutual Fund Scheme may or may not be sustained in future. There is no guarantee that the investment objective of any suggested scheme shall be achieved. All existing and prospective investors are advised to check and evaluate the Exit loads and other cost structure (TER) applicable at the time of making the investment before finalizing on any investment decision for Mutual Funds schemes. We deal in Regular Plans only for Mutual Fund Schemes and earn a Trailing Commission on client investments. Disclosure For Commission earnings is made to clients at the time of investments. Option of Direct Plan for every Mutual Fund Scheme is available to investors offering advantage of lower expense ratio. We are not entitled to earn any commission on Direct plans. Hence we do not deal in Direct Plans.

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