Howdy Wall St. Willy! In an ad on TV, I heard about an Actively Managed Fund. But what is an actively managed fund anyway?
Actively managed funds are Mutual Funds in which the investment is made by a fund manager based on their judgement after looking closely at the investment options and performing a detailed analysis.
The idea is to beat the market or to get returns that are better than the average market returns.
Well, what kind of analysis do they do?
It could be fundamental analysis or technical analysis, but these are topics for another time.
What are the advantages of actively managed funds?
The biggest advantage is the possibility of beating the market. Also, the fund manager has the flexibility in making investments since they are not limited to an index.
What are the disadvantages of actively managed funds?
Most actively managed funds underperform or do worse than the market. So, choosing a fund that beats the market consistently, after your make your investment, is a very difficult task.
Another disadvantage is their high cost or expense ratio because a team of research analysts needs to be hired and brokerage needs to be paid for the frequent buying and selling of investments.
Most actively managed funds also have a load or commission which adds to the cost for you. The frequent trading also results in a higher income tax.
Well, what asset classes do they invest in?
Actively managed funds invest in stocks, bonds and other securities.
Well, should I invest in an actively managed fund?
For stock investments, actively managed funds usually should be avoided, because their disadvantages outweigh their advantages. But actively managed funds can certainly be used for bond investments.
Thank you very much for telling me about actively managed funds, Wall St. Willy.
You are welcome, Sooper Cooper. Remember, Finance is Your Friend!
Podcast: What are Actively Managed Funds or Actively Managed Mutual Fund / MF?
Fun, informative and concise episodes by a 10-year old, breaking down complex financial concepts in a way that kids and beginners can understand. Episodes cover personal finance topics like saving, investing, banking, credit cards, insurance, real estate, mortgage, retirement planning, 401k, stocks, bonds, income tax, and more, and are in the form of a conversation between a cowboy (a finance novice) and his friend, a stock broker. Making finance your friend, only at Easy Peasy Finance.
A little bit about me: I have been fascinated with the world of personal finance since I was 6! I love to read personal finance books, and keep myself updated on the latest by reading various personal finance magazines. My friends often ask me questions about finance because they find it complex and intimidating. That’s what inspired me to start my YouTube channel called Easy Peasy Finance when I was 8, and this podcast 2 years later.
All you need to know about Actively Managed Funds: What are Actively Managed Funds, what kind of analysis is done before investments are made by the fund manager in Actively Managed Funds, what are the advantages and disadvantages of actively managed funds, what asset classes do actively managed funds invest in, should you invest in actively managed funds, and more.
Show notes and transcript at: https://easypeasyfinance.com/what-are-actively-managed-funds/