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Consider the following statements regarding Equity fund:
- Active fund relies on professional fund managers who manage investments.
- Passive fund holds a portfolio that replicates a stated index or benchmark.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'C'. Can you explain this answer?
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Most Upvoted Answer
Consider the following statements regarding Equityfund: Active fund re...
According to a recent study during the July-September quarter (Q2) active equity funds witnessed net inflows of about Rs 74,000 crore with fund managers and on the other hand, passive equity funds saw Rs 9,000 crore of inflows.
- An equity fund is a mutual fund that invests principally in stocks.
- It can be actively or passively (index fund) managed. Equity funds are also known as stock funds.
- Stock mutual funds are principally categorized according to company size, the investment style of the holdings in the portfolio and geography.
What are Active equity funds?
- In this fund the fund manager is ‘Active’ in deciding whether to buy, hold, or sell the underlying securities and in stock selection.
- This fund relies on professional fund managers who manage investments.
- Active funds adopt different strategies and styles to create and manage the portfolio.
- They are expected to generate better returns (alpha) than the benchmark index.
- The risk and return in the fund will depend upon the strategy adopted.
What are Passive equity funds?
- These funds hold a portfolio that replicates a stated index or benchmark.
- In a passive fund, the fund manager has a passive role in the stock selection.
- Buy, hold or sell decisions are driven by the benchmark index and the fund manager/dealer merely needs to replicate the same with minimal tracking error.
Hence both statements are correct.
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Consider the following statements regarding Equityfund: Active fund re...
Statement 1: Active fund relies on professional fund managers who manage investments.
Active funds are managed by professional fund managers who actively make investment decisions in order to outperform the market. These fund managers carefully analyze various factors such as economic conditions, industry trends, company financials, and market sentiment to identify investment opportunities. They aim to generate higher returns than the benchmark index by actively buying and selling securities. The fund manager has the flexibility to deviate from the benchmark index and make investment decisions based on their expertise and market outlook. Therefore, statement 1 is correct.
Statement 2: Passive fund holds a portfolio that replicates a stated index or benchmark.
Passive funds, also known as index funds, aim to replicate the performance of a specific index or benchmark. These funds do not rely on active investment decisions made by fund managers. Instead, they invest in the same securities in the same proportion as the benchmark index. The objective of a passive fund is to match the returns of the benchmark index rather than outperform it. Passive funds are designed to provide market returns at a low cost and with minimal turnover. Therefore, statement 2 is correct.
Conclusion:
Both statements 1 and 2 are correct. Active funds rely on professional fund managers who actively manage investments to outperform the market, while passive funds hold a portfolio that replicates a stated index or benchmark.
Active funds are managed by professional fund managers who actively make investment decisions in order to outperform the market. These fund managers carefully analyze various factors such as economic conditions, industry trends, company financials, and market sentiment to identify investment opportunities. They aim to generate higher returns than the benchmark index by actively buying and selling securities. The fund manager has the flexibility to deviate from the benchmark index and make investment decisions based on their expertise and market outlook. Therefore, statement 1 is correct.
Statement 2: Passive fund holds a portfolio that replicates a stated index or benchmark.
Passive funds, also known as index funds, aim to replicate the performance of a specific index or benchmark. These funds do not rely on active investment decisions made by fund managers. Instead, they invest in the same securities in the same proportion as the benchmark index. The objective of a passive fund is to match the returns of the benchmark index rather than outperform it. Passive funds are designed to provide market returns at a low cost and with minimal turnover. Therefore, statement 2 is correct.
Conclusion:
Both statements 1 and 2 are correct. Active funds rely on professional fund managers who actively manage investments to outperform the market, while passive funds hold a portfolio that replicates a stated index or benchmark.
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Consider the following statements regarding Equityfund: Active fund relies on professional fund managers who manage investments. Passive fund holds a portfolio that replicates a stated index or benchmark.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer?
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