How to Find the Balance Between Active and Passive Investing?

You might have come across the term active and passive investors quite often.
How to Find the Balance Between Active and Passive Investing?

These investors are classified on the basis of the investment strategies that they follow. There are two distinct ways of making investments that involve a number of factors and show different kinds of results.

The active investor uses an active investing strategy. Similarly, the latter employs a passive investing strategy. However, you do not have to be at the extreme ends of the spectrum. You may create a blend of both active and passive investing strategies, coupled together harmoniously.

But, what is the fundamental difference between passive and active investing, and what route should you choose to achieve your financial goals? We explore all this and more in this blog and help you decide the suitable method for you. To get more tips on how to successfully evaluate your investment portfolio, read our blog here.

What is active investing?

Active investing is an investment plan or a strategy where the buying and selling are actively monitored and handled by investment managers.

The portfolio manager plays a central role in active investing. Here, it becomes crucial for them to be up-to-date on the market trends. It is also vital to have the requisite analytical knowledge to invest in the right financial services and products. Not just this, but understanding the right time to enter an investment or get out of it based on several factors in order to get maximum returns is necessary.

In active investing, a team of analysts promptly analyses the qualitative and quantitative factors before investing. This team minutely tracks these factors and the investments to ensure that the investment portfolio generates high returns for its investors and minimizes the scope for losses. This team is headed by an experienced portfolio manager who drafts an investment strategy, takes decisions viz-a-viz fund allocation, and makes the call on each investment.

Active investing involves frequent buying and selling of securities with the ultimate goal of the investment portfolio outperforming the market indices. You can choose to be an active investor yourself or get an experienced professional to do it for you via actively managed mutual funds and ETFs.

The investment planners and professionals at TejiMandi have experienced fund managers from leading AMCs. We use our expertise to choose the best stocks in an investment portfolio and actively track them to generate high returns so you can rest assured about your investment!

Let us now look at the other kind of investment strategy, which is passive investing.

What is passive investing?

Warren Buffett has been an ardent believer in the slow and steady process when it comes to investing. Passive investing is also based on the same strategy, also known as the ‘buy and hold strategy. In passive investing, the investor chooses a fundamentally strong stock, buys it at a low price, and holds it for the long term to generate good returns. This strategy is opted for by investors who want to generate wealth for larger goals like early retirement, among many other things.

In passive investing, you don’t have to track your investments every day. You can simply buy the stocks of fundamentally strong companies and forget. When investing in passively managed mutual funds, you benefit from lower costs due to a negligible expense ratio and a lower exposure to risk.

To understand the concept better, let us compare the two kinds of investing strategies side by side.

Difference between active and passive investing

The followings are the differences between active investing and passive investing:

Difference between active and passive investing


Which one to choose: active or passive investing?

Both active and passive investing are investment strategies that can help you maximise your returns in the stock market. Active investing aims for high returns in a short time, but the investments can be highly volatile. Additionally, high fees and other charges are expected in active investing. Therefore, investors opting for the active investing route must be prepared to shell out a high amount of taxes, fees, and charges. They must always be ready to take on the challenge of investing in a volatile market in exchange for high returns.

On the other hand, investors who want to generate wealth sustainably and in a more secure manner can opt for passive investing. The fees and additional charges are comparatively less than what active investors pay. Passive investing is all about making long-term investments. Even the market-linked risk factors associated with equity shares are minimal when investing using a passive strategy. The bottom line is that the returns from passive investing are ultimately higher over a period of time.

Having said that, passive investing has always been overwhelmingly popular among both seasoned and novice investors. The main reasons for this can be attributed to consistent performance, low risk, high transparency, higher tax benefits, minimal fees, and a lower expense ratio.

The takeaway

Both active investing and passive investing have advantages and disadvantages. Basically, there are no such rules or points that confirm which investing strategy is best for a specific category of individuals. Investors can select their products by analysing the main parameters, which are their risk profiles, the budget, time factor, and expected returns.

Experts at TejiMandi help make investing easy. With clear statements, sharp analysis, and the potential to spot the right stocks for investments, we help you transform your investment portfolio! Compare our two investment plans here.

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