The major difference between active and passive mutual funds is that:
A) active funds are classed as mutual funds, but passive funds are not.
B) active funds involve stock picks by managers, while passive funds involve stock picks by the investors themselves.
C) active funds are more risky than passive funds.
D) active funds involve stock picks by managers, while passive funds match the movements of a broad market index.

Question

Quizplus · Accepted Answer

The major difference between active and passive mutual funds is that active funds involve stock picks by managers, while passive funds match the movements of a broad market index. Therefore, Option D is the correct answer. Option A and B are incorrect as passive funds are also considered mutual funds, and investors do not pick individual stocks in passive funds. Option C is not necessarily true as the risk level of mutual funds (both active and passive) depends on various factors including asset allocation, diversification, and investment strategy.

The Major Difference Between Active and Passive Mutual Funds Is