What are Actively Managed Funds or Actively Managed Mutual Fund / MF?

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?

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