Passive Fund

Passive funds track an index with the goal of replicating that benchmark's return. Passive funds' management teams don’t choose specific investments for the portfolio in an attempt to outperform an index, as managers of active funds do.

A passive fund often tracks stock or bond market indexes. It can be a core holding in investor portfolios when tracking a broadly diversified index. Because portfolio managers aren’t paid for their investment selection, passive funds tend to be cheaper than actively managed funds.

Passive funds have been increasingly popular in recent years. Many investors are putting more money into these funds than their active fund counterparts because they deliver similar results usually at much lower cost.