Before investing in mutual funds, we must first know what type of fund we are going to invest in. And how do fund managers manage funds? The methods that fund managers use to manage funds are passive funds and active funds. So, what are passive funds and active funds? Which one is better? We have an answer here.
A passive fund, or index fund, is a mutual fund that has an investment objective of earning a return as close to the index as possible. For example, today the SET Index is +5%, which means index mutual funds must be +5% or +4.9% or +5.1% approximately (get the closest), etc.
Index mutual funds are mostly divided by the index or benchmark that the fund is invested in to get a return as close as possible, such as SET, SET100, SET50, and SETHD. Investors can recognize the fund’s name. The name of the fund will tell you which index the fund uses. For example, a passive fund that uses the SET50 index as a citation index will have SET50 in the name. Moreover, investment guidelines will be in the prospectus.
The answer is if we believe that market funds are effective and every share price in the market is reasonable, investment in index funds is the answer. Because if we see that every share price is appropriate and reasonable, it means it is a waste of our time to try to beat the market. It was like things in 20-baht, quality and quantity were appropriate with the price. We didn’t have to buy or do any competition in the market.
Therefore, investing in an index fund is like buying the whole stock market according to the index. The index fund will not try to choose the best stocks or avoid the worst stocks but will invest according to the market. Now let’s see the advantages and disadvantages of index funds.
Has the lowest risk
It must always invest in stocks
Lower fees than active funds
When there is a market downturn, index funds cannot sell out of portfolios.
the risk of stock selection is lower.
Index funds only aim to get returns close to the index.
Active funds have proactive management, whereby fund managers can select investing assets to receive a return higher than the specified standard (benchmark), such as investing to get a higher rate of return than the SET Index, which can be divided into 2 types:
The advantages and disadvantages of active funds are the opposite of passive funds.
The answer is that it is suitable for investors who think that they must have a good fund manager that can win the market for the long term and manage the funds to achieve a good return. Active funds have more expensive fees, but investors are willing to pay because they believe in the fund manager. Therefore, we must choose the right funds and don’t forget that most mutual funds lose to the market.
In summary, both types of funds have different advantages and disadvantages. Investors must therefore choose to invest based on their investment goals, investment period, and risk tolerance and must not forget to read the prospectus before making a decision.
Nibhapan Poonsatiansup CFP®
independent financial planner writer and lecturer.
Try to assess the risk and suitability for yourself. Every investment carries risks. One thing that we should do before investing reduces the risk as much as possible.