If you are a long-term investor seeking growth and don't have the time to put much time into money management, then an index fund is probably a good investment. Active funds are managed on a daily basis by a portfolio manager. He or she selects investments for the fund based on the fund's objectives. Since the portfolio manager is buying and selling stocks, there are capital gains tax liabilities that the fund must pass on to investors in the form of an annual distribution. Distributions are made to investors at the end of the year, and investors are required to pay capital gains taxes on the distributions.
Active management gives investors the opportunity to beat the market indices.
This is the goal of most active managers, although most managers fail to achieve this goal. It is imperative that investors take into consideration both the positives and the negatives of active funds, especially the added fees and tax consequences before making a purchase decision. International Funds Mutual funds that invest internationally have become very popular recently. These funds allow investors to diversify beyond domestic investments, as well as access to markets that would be difficult for an individual to enter on his own. While they allow for greater diversification as well as the opportunity for high returns, international funds do have added risks and drawbacks.