{"concept":{"id":26,"slug":"investment-fund","term":"Investment fund","shortDefinition":"A vehicle that pools money from many investors to invest jointly in a portfolio of assets, managed by a professional management company.","longDefinition":"An investment fund pools money from many investors to invest it jointly in a portfolio of assets, managed by a professional management company. An index fund (already covered) is one specific case of an investment fund that follows passive management -- but not all funds work that way: management can be active or passive, depending on whether a management team makes ongoing decisions about what to buy or simply tracks an index."},"relations":{"requirement":[],"contrast":[],"related":[{"concept":{"id":24,"slug":"index-fund","term":"Index fund","shortDefinition":"An investment fund that tracks an index, just like an ETF, but is bought and sold once a day at its net asset value, not in real time like an ETF.","longDefinition":"An index fund pursues the same goal as an ETF tracking the same index -- matching its performance -- but it doesn't trade on an exchange. It's bought and sold directly through the fund's management company (or a broker acting as an intermediary), at a single price calculated at the end of the day -- the net asset value (NAV) -- with no ability to choose the exact price during the day, unlike an ETF. It typically makes recurring automatic contributions of any amount easy, without the trading cost of each individual ETF purchase on an exchange."}},{"concept":{"id":29,"slug":"fund-prospectus","term":"Fund prospectus","shortDefinition":"A document that summarizes a fund's essential information -- objective, investment policy, risk profile, costs, and historical performance -- before investing.","longDefinition":"The fund prospectus, also called the Key Information Document, summarizes the essential information an investor needs to decide with sound judgment, without having to read the fund's full regulations: its actual objective and investment policy (not just what its commercial name suggests), its risk profile, its total costs, and its historical performance -- always with the caveat that past performance doesn't guarantee future results. It's updated periodically, so it's worth always checking the current version."}}],"calculatedBy":[]},"curricularPosition":[{"id":23,"moduleId":8,"slug":"active-vs-passive-management","title":"What is the difference between active and passive management?","summary":"You understand what an investment fund is and distinguish active management from passive management.","bodyMarkdown":"## Objectives\n\nBy the end of this lesson you understand what an investment fund is and distinguish active management from passive management.\n\n## Content\n\nAn investment fund is a vehicle that pools money from many investors to invest it jointly in a portfolio of assets, managed by a professional management company. You already know one specific case -- the index fund, covered in the previous module -- but not all funds work the same way.\n\nThe main difference lies in how it's decided what to buy. Under **passive management**, the fund simply tracks an index, like the index fund already covered, without a manager actively deciding which assets to pick or when to buy and sell. Under **active management**, a management team makes ongoing decisions -- which assets to buy, when, and in what proportion -- with the goal of achieving a return higher than a benchmark index.\n\nThat continuous work of analysis and decision-making that active management requires translates into higher management costs than a passively managed fund's -- you'll see the real impact of that cost difference in this module's last lesson.\n\nNeither is superior in absolute terms. Active management offers the possibility of beating the market, but also the risk of failing to do so once its higher costs are factored in. Passive management gives up that possibility in exchange for tracking the market at a lower, more predictable cost.\n\n## Example\n\nA passively managed fund that tracks a broad stock market index simply buys the same companies that make it up, with no one actively deciding which ones to pick. An actively managed fund investing in that same market, on the other hand, has a management team deciding which specific companies to buy, trying to outperform that index.\n\n## Common mistakes\n\n- Thinking active management always beats the market just because it has a management team making decisions -- there's no guarantee of a result, and its higher costs reduce net return from the start.\n- Confusing passive management with \"doing nothing\" -- the fund is still being managed, tracking the index with precision, simply without active choices about what to pick.\n\n## Summary\n\nAn investment fund pools money from many investors into a common portfolio. Passive management tracks an index without active decisions; active management tries to beat the market with ongoing decisions, in exchange for higher costs.\n\n## Self-check\n\nWhat does a manager decide in an actively managed fund that no one decides in a passively managed one?\n\nWhy does active management usually have higher costs than passive management?","bodyHtml":"<h2>Objectives</h2>\n<p>By the end of this lesson you understand what an investment fund is and distinguish active management from passive management.</p>\n<h2>Content</h2>\n<p>An investment fund is a vehicle that pools money from many investors to invest it jointly in a portfolio of assets, managed by a professional management company. You already know one specific case -- the index fund, covered in the previous module -- but not all funds work the same way.</p>\n<p>The main difference lies in how it's decided what to buy. Under <strong>passive management</strong>, the fund simply tracks an index, like the index fund already covered, without a manager actively deciding which assets to pick or when to buy and sell. Under <strong>active management</strong>, a management team makes ongoing decisions -- which assets to buy, when, and in what proportion -- with the goal of achieving a return higher than a benchmark index.</p>\n<p>That continuous work of analysis and decision-making that active management requires translates into higher management costs than a passively managed fund's -- you'll see the real impact of that cost difference in this module's last lesson.</p>\n<p>Neither is superior in absolute terms. Active management offers the possibility of beating the market, but also the risk of failing to do so once its higher costs are factored in. Passive management gives up that possibility in exchange for tracking the market at a lower, more predictable cost.</p>\n<h2>Example</h2>\n<p>A passively managed fund that tracks a broad stock market index simply buys the same companies that make it up, with no one actively deciding which ones to pick. An actively managed fund investing in that same market, on the other hand, has a management team deciding which specific companies to buy, trying to outperform that index.</p>\n<h2>Common mistakes</h2>\n<ul><li>Thinking active management always beats the market just because it has a management team making decisions -- there's no guarantee of a result, and its higher costs reduce net return from the start.</li><li>Confusing passive management with &quot;doing nothing&quot; -- the fund is still being managed, tracking the index with precision, simply without active choices about what to pick.</li></ul>\n<h2>Summary</h2>\n<p>An investment fund pools money from many investors into a common portfolio. Passive management tracks an index without active decisions; active management tries to beat the market with ongoing decisions, in exchange for higher costs.</p>\n<h2>Self-check</h2>\n<p>What does a manager decide in an actively managed fund that no one decides in a passively managed one?</p>\n<p>Why does active management usually have higher costs than passive management?</p>","sortOrder":1,"readingMinutes":5,"difficulty":"Básico","url":"/en/academy/fundamentals/investment-funds/active-vs-passive-management"}],"graphSummary":{"root":{"type":"concept","id":"26","depthFromRoot":0,"entity":{"type":"concept","slug":"fondo-de-inversion","term":"Fondo de inversión","excerpt":"Vehículo que agrupa el dinero de muchos inversores para invertirlo conjuntamente en una cartera de activos, gestionado por una gestora profesional."}},"depth":1,"returnedNodes":1,"truncated":false,"hasCycle":false,"nodes":[{"type":"concept","id":"26","depthFromRoot":0,"entity":{"type":"concept","slug":"fondo-de-inversion","term":"Fondo de inversión","excerpt":"Vehículo que agrupa el dinero de muchos inversores para invertirlo conjuntamente en una cartera de activos, gestionado por una gestora profesional."}}],"edges":[]},"relatedNews":[],"relatedEntities":[]}