Investment word of the day: Investing in the stock market may be intimidating, especially for beginners. Many struggle with understanding essential stock market terms, making the process complex. 

Here’s a simple guide to one such term: active funds. Let’s see what active funds are, how they work, and why they matter.

What are active funds?

Investors can choose between two types of prominent mutual funds: active and passive. Active funds or actively managed mutual funds require a professional fund manager who chooses and manages a portfolio of securities in accordance with market indices such as S&P 500, Nifty 50, etc. Unlike passive funds that simply track the performance of an index, active funds take a more hands-on approach, aiming to secure higher returns.

How do active funds work?

Fund managers, along with analysts and researchers, actively monitor market trends and economic conditions to make investment decisions. They buy, hold, or sell securities to maximise returns and outperform specific benchmark indices.