Class Participation

Date: 20th March, 2023

Name: Sankalp Mishra (BD22092)
Section: C

1) My Q. How to decide whether to chose Active fund vs Passive fund

Faculty response: Active funds are expensive, riskier and involve more decision making on
the behalf of fund manager. If the investor can financially afford an active fund, and the risks
and goals are in line then active funds could be considered.
On the other hand if the investor cannot financially afford, is okay with moderate returns
and does not want the fund manager to take too many decisions, then passively managed
funds could be considered.

Class Learnings:
 In active funds, portfolio managers buy and sell securities, to outperform a benchmark
index.
 Passive funds, aim to replicate the performance of a specific market index by holding the
same securities in the same proportions as the index.
 Alpha is a metric which measures a fund's performance relative to its benchmark index,
taking into account the risk-adjusted returns.
 Beta is a metric that measures how sensitive a fund is to market fluctuations.
 Passive funds can be created by either directly replicating all the companies in the
benchmark index or by picking few companies and adjusting to achieve Beta=1. This is called
Smart Beta.
 Following the latter leads to a tracking error which is relative risk of an investment portfolio
as compared to its benchmark index.
 Unsystematic risk is the risk that is unique to a specific company or industry. Unsystematic
risk can be reduced through diversification.
 Systematic risk is attributed to broad market factors and cant be reduced by diversification.