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Ch.2 · Advantages and Limitations of Mutual Funds · easy

What is a passive fund?

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EXPLANATION

A passive fund replicates the composition of a market index (e.g., Nifty 50, Sensex) by holding the same securities in the same proportion as the index. It does not involve active stock selection. Passive funds have lower expense ratios than active funds.

A.A fund that does not make any investment decisions

B.A fund that replicates the composition of a market index without active stock selection [✓ Correct]

C.A fund that only invests in government securities

D.A fund that holds its portfolio unchanged for 5 years

EXPLANATION

A passive fund replicates the composition of a market index (e.g., Nifty 50, Sensex) by holding the same securities in the same proportion as the index. It does not involve active stock selection. Passive funds have lower expense ratios than active funds.

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