What is a passive mutual fund?
When looking at mutual funds as a component of an overall investment plan, many criteria distinguish one fund from another. These criteria include asset class (stocks, bonds, international and industry sectors), and management style. However, every mutual fund will be either actively or passively managed.
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Passive management often refers to index funds. Investors utilize passive management because it provides broad market diversification and low relative internal expense ratios. Passive management is essentially a buy and hold strategy that results in relatively low trading costs despite the large number of security positions within an index portfolio. Passive investing through an index fund also provides significant diversification benefits since index portfolios hold all the stocks comprising their specific asset class universe.
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