Passive funds track an index with the goal of replicating that benchmark's return. Passive funds' management teams don’t choose specific investments for the portfolio in an attempt to outperform an index, as managers of active funds do.
Also called: Index fund
What is a passive fund?
- A passive fund is a mutual fund or exchange-traded fund whose portfolio managers don’t choose specific investments but automatically invest in an index or part of a market.
- A passive fund often tracks stock or bond market indexes.
- It can be a core holding in investor portfolio when tracking a broadly diversified index.
A passive fund often tracks stock or bond market indexes. It can be a core holding in investor portfolios when tracking a broadly diversified index. Because portfolio managers aren’t paid for their investment selection, passive funds tend to be cheaper than actively managed funds.
Passive funds have been increasingly popular in recent years. Many investors are putting more money into these funds than their active fund counterparts because they deliver similar results usually at much lower cost.