Battle of Returns
Ninad Ramdasi / 08 Feb 2024/ Categories: DSIJ_Magazine_Web, DSIJMagazine_App, Letters to Editor, MF - Letter to Editor, Mutual Fund
The article on passive and active management was an eye-opener.
The article on passive and active management was an eye-opener. But my question is - are there risks associated with both? - Jaya Nadkarni [EasyDNNnews:PaidContentStart]
Editor Responds : Thank you for writing to us. Yes, both active and passive management styles in mutual funds carry inherent risks, though they differ in nature and potential impact.
The success of active management largely depends on the fund manager's skill in selecting investments and timing the market. A poor decision by the manager can lead to underperformance relative to the fund's benchmark. Passive funds aim to replicate the performance of a specific index, which means they are fully exposed to the market's volatility. If the market declines, the fund will likely decline as well.
Risks associated with active management are higher fees, underperformance risk, manager risk, and higher volatility. Risks in passive management are tracking error risk, limited diversification, market risk, and limited upside potential.
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