This is a relatively low-cost way of running your investment portfolio because the hands-on involvement of a fund manager largely disappears.
A passive investment fund works by tracking certain indexes, such as a particular stockmarket. That means if one particular share tanks, you’re not going to be overly exposed to it – but it also means you aren’t in a position to benefit as much if another company’s share price soars.
The simplicity of passive investing can be attractive to some people – it means they find it easier to understand their investments. And although many investors prefer to allow a manager to actively manage their portfolio, a passive investment portfolio takes away the risk that a bad fund manager delivers underperformance.