Active funds include stock funds, hybrid funds, bond markets and bond funds, and rely on fund managers to choose stocks (bonds) at the right time to earn expected returns. Index funds mainly track index performance, and the role of fund managers is not as important as active funds.
First, the fund has different goals.
What active funds pursue is to outperform the broader market, outperform the performance benchmark and achieve the top ranking of similar funds. An excellent active fund not only earns more than other funds in a bull market, but also falls less in a bear market.
The goal of index fund is to track the index, strive for synchronization and reduce tracking error. The most important thing for index funds to make money is to choose the right index, followed by choosing index funds with small tracking error and low fund handling fee.
Second, it operates in different ways.
Among active funds, fund managers can take the initiative to add positions according to the situation, especially hybrid funds are the most flexible. Index funds, on the other hand, can't move and can only keep pace with the index. Therefore, in the bull market, the index fund has a high position and the biggest increase; In the bear market, index funds also fell the most because of their high positions. Compared with index funds, index-enhanced funds give fund managers a certain operating space, and their flexibility is better than index funds.
Third, the transaction costs are different.
Active fund management is more difficult, and the transaction cost is higher than that of index fund. The specific cost depends on the fund itself and the purchase channel.