Have you heard or know the terms Active Fund or Active Investing and also Passive Fund or Passive Investing while investing in Equity Mutual Funds or other Mutual Funds? Which one suits you?
The management of Equity Mutual Fund funds by the Investment Manager can be done in two ways, namely Active Fund and Passive Fund. As the name suggests, Active Fund means that the Investment Manager will conduct more investment-related activities such as analyzing performance, projecting stock prices, and selecting stocks to buy and sell, in contrast to Passive Fund where the Investment Manager will mostly match the stock portfolio with an index available in the market.
Difference Between Active Fund and Passive Fund in Equity Mutual Fund
Investor can choose between two strategies by the Investment Manager selected to manage Equity Mutual Funds. You need to understand what Equity Mutual Funds are and how to optimize them both actively and passively.
The two methods have significant differences. The following is the difference between active funding and passive funding from Equity Mutual Funds.
1. Management Fee
Equity Mutual Funds portfolio which is considered Passive Funds charge lower management fees. This makes sense considering that it is not actively managed. The fewer activities performed, the lower the costs incurred.
While Active Fund is the opposite. Fund management costs are higher because the Investment Manager is more active in analyzing, buying, and selling stocks.
Fees that need to be paid for Active Funds include fees for the custodian bank, Investment Manager, prices for buying and selling transactions, and other related expenses.
2. Investment Manager
Investment Managers who use the Active Fund strategy have the freedom to choose stocks based on the analysis results that have been tested and developed by the management team. The difference with the Passive Fund strategy is that the Investment Manager does not carry out an active but periodic analysis to select stocks to invest.
Passive management has stock options that are limited to stocks in the reference portfolio index. So no in-depth analysis is necessary to determine which stocks to take.
3. Investment Period
Equity Mutual Funds that use passive management strategy are suitable for long-term investments. The profit potential will be more stable even though it is relatively lower than Active Fund. The potential rate of return refers to an existing index and provides minimal risk, which can be the right choice for investors who want stable results.
Meanwhile, active investment targets short-term investments with higher yield potential. The potential return is higher than Passive Fund but the risk will be higher.
4. Exchange Traded Fund
Passive investments are included in the ETF or Exchange Traded Fund which also means Mutual Funds that are traded on the stock exchange. Types that can be traded include Equity Mutual Funds, Money Market Mutual Funds, and Bonds.
Meanwhile, Equity Mutual Funds with active investments target stocks listed in the Composite Stock Price Index or better known as the JCI. Due to its active form, there are more stock options as a benchmark with better performance according to the analysis of the Investment Manager team.
5. Number of Stocks
The number of Equity Mutual Funds included in the Active Fund portfolio list is limited to only about the 10 largest names stated in the Fund Fact Sheet section. While the Passive Fund can include more stocks in its Mutual Funds investment.
The purpose of a Passive Fund is to return funds according to the market, they don't have to exceed it. So, up to 100 stocks can be taken following the existing market value proportion.
6. Standard Error (SE)
The measure of investment success in stocks is how small the difference between a Mutual Funds’ performance and the performance index itself, known as standard error or SE for short.
The commonly used number in an Index Mutual Funds is 1%. This means that the Investment Manager will aim for only a maximum of 1% higher or lower Mutual Funds performance compared to the target index.
So, from the explanation above, both strategies have the potential to grow your investments and generate returns, but the risks are inseparable.
Equity Mutual Funds Investment in DBS Treasures
If you want to choose Equity Mutual Funds investment products, whether managed actively or passively by the Investment Manager, you can choose DBS Treasures priority banking which has various advantages, making it the right choice for investing. Here are some of the advantages of investing in Equity Mutual Funds with DBS Treasures.
1. Professional Management
All Equity Mutual Funds investment options are managed by professional Investment Managers partnered with DBS Treasures. The Investment Managers optimize product performance both actively and with a passive strategy that relies on index performance.
2. A Wealth of Insights
Investments are supported by experts and professionals with financial backgrounds who communicate insights that have been tailored to the aspirations and needs of each investor. Investors will gain advisory on which product is the right one to seize the latest market momentum.
3. Minimizing Risk
DBS Treasures enables you to diversify, ensuring a healthy spread of invested funds. You can divide funds into several types of investment assets to minimize the risk.
You can invest in more than one Mutual Funds so that when one is on the downtrend, your losses are not too high. You can rely on other products that are distributed according to the latest trends, professional team analysis, and also stock market conditions.
This investment spread has proven to be effective in dealing with investment uncertainty, which always has the opportunity for returns or risks regardless of what strategy you take.
4. Easy Transaction
The Equity Mutual Funds investment transaction process with the digibank by DBS Application is supported by Mutual Funds analysis based on Infovesta data, ensuring the ease of direct buying, selling, and switching transactions.
For investors who do not yet have an SID or Single Investor Identification from KSEI or the Indonesian Central Securities Depository, the registration process can be done through one application, namely digibank by DBS Application.
The wide range of conveniences in transacting, choosing Equity Mutual Funds, and monitoring investments make the digibank by DBS Application the right choice to support your wealth growth through the various types of available investments.
That concludes the brief explanation on the difference between Equity Mutual Funds investments using active and passive fund management. You can choose Active Fund investments with the potential to gain higher returns or choose Passive Fund investments with the potential to provide more stable returns.
Choose DBS Treasures in partnership with a reliable Investment Manager and also a wealth management strategy that suit your needs, supporting you make the right investment move and strategy confidently.
