An index fund is a portfolio designed to track an index. It does not take much skill to create an index fund. One just buys the stocks in the index in proportion to their weight in the index. Since it doesn't take much skill to create an index, one can index inexpensively. Active vs. Passive Management Investors pay higher fees to managers who claim to offer better performance.
Active management involves buying stocks in anticipation of their outperforming the market.
As their name suggests, active managers engage in a higher degree of trading than passive managers who buy and hold. Active managers must make up both for the higher fees they charge and for the higher trading costs they incur. Trading costs include commissions paid to brokers and the spread between the bid and ask price. The bid is the price at which a stock can be sold and is lower than the ask which is the price at which a stock can be bought. This is a significant cost which never shows on a confirm or statement.