Active and Passive Investments

These are generally two kinds of investing. The terms "Active" and "Passive" represent the aggressiveness involved in the trading of stocks in the portfolio. The active investments are those where the trading of stocks is so frequent that the aim of the portfolio is to beat the returns generated by the sensex or the benchmark which is corresponding to portfolio. An active investment also represent the involvement of the fund manager in trading. The fund manager in this case is so concerned and so 'actively' involved in the transactions of trading that he is very obsessive of beating the returns generated by the portfolio's benchmark. He is an active member and reviews the portfolio and takes decision for 'buy' or 'sell' very frequently.


On the other hand, "Passive" investment is more with a long term view of generating returns. The involvement of the fund manager is not that intense as compared to the "Active investments". Index funds are one example of passive investments. The portfolio is more like the index which it is referring to.

The risk that is involved in an "active" investment is high compared to that of the passive investment. However, it depends on how good the fund manager performs while taking the "bur" or "sell" decisions.