Actively Managed Funds vs. Index Funds

The wide range of investment accounts that comprise the managed fund industry is staggering to say the least. There are thousands to choose from, and opportunities for investors both large and small. When deciding between managed funds you will need to choose between actively managed funds versus index based funds.

Managed Fund Basics

Actively managed funds are those investment tools where a human being actually crunches numbers to choose different investment packages with the ultimate goal of beating the investment benchmark index. Actively managed funds are monitored closely by a fund manager and often have a research staff backing up the system. How well an actively managed fund performs is really based on the knowledge and skill set of the team managing the investment.

Index Fund Basics

Index based funds have the goal of duplicating the movements of a specific market index regardless of market conditions. Human input is second to the computer programs that have decided the fate of a specific index based fund. The type of management style for index based funds is commonly called passively active funds because of the lack of human involvement in the entire process.

You will need to compare both styles of investment management and decide if you are comfortable with one or both scenarios. Make sure you do the appropriate amount of research and consult with an investment manager before making any big decisions.