An active fund is an investment fund managed by a professional portfolio manager or a team of managers who aim to outperform a specific benchmark index. Unlike passive funds, which simply track an index, active funds involve continuous research, analysis, and decision-making to select securities that are expected to deliver superior returns. The manager actively decides which stocks, bonds, or other assets to buy, hold, or sell based on market conditions, company performance, economic trends, and valuation metrics.

Active funds rely on strategies such as fundamental analysis, technical analysis, sector rotation, and market timing. The goal is to generate “alpha,” which represents returns above the benchmark after accounting for risk. Because of the research, trading activity, and management expertise involved, active funds typically have higher expense ratios than passive funds.

These funds can focus on various asset classes, including equities, fixed income, or mixed portfolios. They may also target specific sectors, regions, or investment styles such as growth or value. Active managers may adjust portfolio allocations during market volatility to reduce risk or capture new opportunities.

While active funds offer the potential for higher returns and downside protection, they also carry the risk of underperforming the benchmark. Success largely depends on the manager’s skill, experience, and strategy execution.