Where does a passive mutual fund invest?

A passive mutual fund invests in the underlying stocks of an index in exactly the same weightage. It tracks the index and doesn’t try to outperform it. Therefore, the passive fund replicates the composition of the index. As a result, investors can earn returns similar to the overall market.

Are passive funds better than active funds?

Passive funds are not necessarily better than active funds. They are more cost-efficient and consistent. However, active funds may outperform the market in certain cases, but they come with higher costs. The decision of fund managers significantly influences their performance.

Can I invest in passive funds through SIP?

Yes, you can create an SIP to invest in passive mutual funds. However, you would need a trading account to buy ETFs.

Do passive funds have risk?

assive funds are market-linked instruments and involve risks. As they track an index, their performance depends on how the market performs.

What is tracking error in passive funds?

Tracking error is the difference between the performance of the passive fund and the underlying index. This type of error shows up due to factors like expenses and operational inefficiencies.