8.14What is a passive fund?
1What is it?
A passive fund follows a set rule or index rather than a manager’s judgement. Index funds and most ETFs are passive.
2Why does it exist?
Low cost, transparent and predictable: you get the market’s return.
3Diagram
| Active | Passive | |
|---|---|---|
| Goal | Beat the index | Match the index |
| Expense ratio | Higher (≈0.5–2%) | Lower (≈0.05–0.5%) |
| Manager risk | Yes | Minimal |
| Examples | Flexi-cap, mid-cap funds | Nifty 50 index fund, ETFs |
4Quick revision
- Follows an index/rule.
- Low cost.
- Market return, no more, no less.
5Knowledge check
Q1. Which is generally cheaper?Show answer
Passive.
Q2. Can a passive fund beat its index?Show answer
Not by design; it aims to match it.
Q3. Name a passive product.Show answer
Index fund or ETF.