Investing term

What is Passive fund?

A fund that holds the benchmark it's tracking — no stock picking.

A passive fund simply holds the index it tracks, with no manager trying to pick winners — it owns the whole benchmark and accepts its return. The reward for this humility is very low fees and, over the long run, results that beat most active funds. Passive investing is the evidence-based default for people who don't want a second job analyzing stocks.

For example

A passive fund tracking the global stock market just owns all of it, charges a sliver in fees, and quietly outperforms most stock-pickers over time.

Passive fund is taught hands-on in Stage 6 — Index Funds, ETFs & Mutual Funds.

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Related terms

Active fundA fund whose manager picks stocks in the hope of beating a benchmark.BenchmarkThe reference index a fund compares itself to — e.g. the S&P 500, MSCI World, or Bloomberg Aggregate.Creation/redemptionThe mechanism that keeps ETF prices close to NAV. Authorized participants swap baskets of underlying stocks for ETF shares (or vice versa).DistributionThe income a fund pays out to its shareholders — dividends from stocks held, plus realized capital gains.
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