Passive Mutual Fund Management: Lower Fees & Tax Efficiency

Passive management of a mutual fund allows you to save on fees on transactions and capital gains taxes. The strategy essentially means the manager makes as few moves as possible on the fund, allowing it to generally ride out market swings. You will not see much change in your fund in the short-term, and this means you will not owe much money on a quarterly or annual basis. In addition to these savings, the funds offer other advantages.

Consistent Style

The style of a mutual fund is the overall approach it takes to investments. Style drift is a phenomenon in which a mutual fund manager constantly changes the approach, and it can be a red flag for an investor. With a passively managed fund, style drift is far less likely.

Predictable Returns

Most funds managed passively track a given index. For example, the mutual fund could track the S&P 500, riding it up and down on a daily, monthly and annual basis. If you have reason to believe the index will show constant growth over time, even if the growth is modest, you can generally predict the returns on your fund over time. This can help for tax planning and additionally reduce the risk associated with your investments.