Should you choose active or passive share investments?

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Sunday 11 July 2004

When comparing actively managed and passively managed NZ share funds it is always a challenge to judge whether the "active" management is likely to add enough value to make it worthwhile. These two types of funds each have distinctive advantages and disadvantages.

By The Landlord

The reasons for investing in a passive fund is quite different for the reason you would invest in an active fund, and like all investing decisions what is the best choice depends on the needs of the individual investor.

There are many aspects to an active fund that you should consider before you invest, such as the degree of "activeness", the manager's abilities, the investing style and the rules that determine what the fund can and can't invest in.

The benefits of passive funds are the typically lower fees and the fact that they may pay less in tax if they don't have to pay tax on capital gains.

While paying less in fees and taxes will certainly enhance net returns, it is important to note that an active fund has the opportunity to actually outperform the index, while the passive fund does not.

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