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Yes, mutual funds can be passive or active, depending on the management style. Considering this, active funds are managed by the fund manager who selects bonds and stocks to outperform the market, whereas passive funds monitor a market index.
Active funds are a collection of securities that are chosen and managed by a professional fund manager. In these funds, the fund manager aims to outperform the benchmark index, such as the Sensex or the Nifty, by using several strategies, such as asset allocation, sector rotations, and more. Additionally, the fund manager has the right to purchase and sell the securities as per their market research and analysis. On the other hand passive fund is a collection of securities that are crafted to replicate the performance of a benchmark index. These funds do not include the active decision-making of the fund manager. Also, the funds are periodically rebalanced to showcase any changes in the index.
Both active and passive mutual funds provide unique benefits and challenges. Active funds through expert management have the potential for higher returns. However, these funds come with higher risks and costs. On the other hand, passive funds offer a straightforward, low-cost way to get market returns, making them the perfect investment choice for many NRIs.
Under the Income Tax Act, 1961, long-term capital gains on equity funds held for more than a year are subject to 10% tax on the amount more than INR 1,00,000, with applicable TDS imposed on NRI earnings.
The examples of passive funds are passive index funds, exchange-traded funds (ETFs), and fund of funds investing in ETFs.
The examples of active funds are debt funds, equity funds, hybrid funds, and some specialized index funds like tilt and smart beta.
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By Ritesh Jain |Last Updated: December 19, 2025
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