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Advantages and Disadvantages of Actively Managed Funds

actively managed fundsAn actively managed fund is type of exchange traded or mutual fund which is totally by a manager or a complete team. This type of fund is totally dependent on these managers and all the major decision making is done by these managers. Actively managed has the specific index, on which these fund are listed according to the specific sectors and fields. Other than these sectors wise allocations in it index, these managers can also allocate funds with respect to the situation of the market.Following are the advantages and disadvantages of actively managed funds.

 

Advantages

Following are the disadvantages faced by the investors investing in the actively managed funds

  • Actively-managed funds offer an advantage over index funds in that managers are not compelled to own shares of any specific company. Portfolio choices are made based on an expectation for performance, not on the basis of a list of companies which comprise an index.
  • Actively managed fund are managed in a way that it is easy to outperform the market, a they are not dependent on some specific index for a given period of time.
  • Actively managed funds are very good option for the investors, who are ready to take higher risk. As these investors are ready to take higher, then there is a big chance of earning them greater returns for their investments.
  • Actively managed funds are very beneficial for the investors, who want to earn money from large pool of funds which comprises of shares from different types of companies. So this also means that their range for earning money is also increased and they feel ease in earning large amount of money as compared to the index tracker funds investors
  • Active managed funds are easy to manage, as in case of the volatile market it is very easy to make changes in your portfolio with respect to the changes in market due to fluctuations in the prices.

Disadvantages

Following are the disadvantages faced by the investors investing in the actively managed funds

  • These types of funds are very costly and difficult to manage, as they have very high operating fees and operating expenses. It is one of the most important disadvantages of the actively managed fund. For short period of time this style of management is feasible, but we can’t say anything about long period of time
  • Actively managed fund are very difficult to manage as far a long term investors are concerned. As we all know that they are expensive and costly, so long term investors feel difficulty in managing them.
  • As their portfolio is more concentrated in nature, so they feel very difficult to perform in the market with these types of investments. So these types of investors have to change their strategy with respect to the market conditions, which is very difficult to do in normal market conditions
  • Transparency is the most important issue faced by the actively managed funds. So this problem creates new problems and issues for the investors and managers, as they feel very difficult to manage these funds successfully .
  • Buy and hold investment strategy is not so successful for the investors dealing in the actively managed funds.

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About Emaad Qureshi