Distinguish between active and passive investment.


The major differences between active and passive investment are as follows &mius;

Active Investment

  • It is an investment invested after doing independent analysis on value of each investment.

  • The main objective is to beat market performance.

  • It focuses on absolute terms.

  • In view of investor perception, market may be inefficient

  • It has higher transaction frequency.

  • It has high returns and more risk.

  • It has high operating cost.

  • It includes short term price fluctuations.

  • High skills are required to make decisions.

  • It is highly flexible in investing.

Passive Investment

  • It is invested after investor portfolio is matched with market portfolio.

  • The main objective is to match tracked index.

  • It focuses on relative returns.

  • In the view of investor perception, market may be efficient.

  • It has low transaction frequency.

  • It has low returns and less risk.

  • It includes low operating cost.

  • It has long term investment focus.

  • Few skills are required to make decisions.

  • It has less flexibility.

Updated on: 27-Jul-2020

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