Heard about an active mutual fund and am wondering what it is as an investment vehicle? Then, you must know that active funds are a category of mutual funds, where fund managers of respective fund houses oversee and maintain a portfolio to generate optimised returns for you.
Such funds are targeted for investors looking for short-term or long-term gains. As of 2025, the AUM of the Indian mutual fund sector stands at INR 80,80,370 crore.
It indicates an increasing popularity, where careful fund management plays a crucial role. For an informed investment, learn about such funds here.
Understanding the Active Mutual Fund
An active mutual fund involves knowledgeable and experienced fund managers or financial experts who, with their strategies, try to manage asset allocation in such a way that investments outperform the market index.
To do this, fund managers typically study the underlying assets of mutual fund schemes such as stocks, bonds, etc, based on their technical and fundamental aspects. They also consider prevailing industry trends, market conditions, etc., while managing funds.
Fund managers in actively managed funds actively purchase and sell underlying securities. This is to adjust or rebalance the mutual fund portfolios so that they stay aligned with their objective and potentially generate an optimised return.
However, due to this active management, the associated expenses are usually higher for a mutual fund investment in such funds. For example, the expense ratio, depending on underlying asset types, can go up to 1.5%.
Therefore, before investing in such funds, aside from their past performance, you must consider the strategies that such a fund follows. Also, looking at the experience of a fund’s manager might be effective in estimating its potential to generate returns.
Types of Active Mutual Funds to Invest in India
Now that you have understood the fundamentals of an active fund, you must note its different types:
1. Equity Funds
Such funds predominantly focus on the company stocks. The respective fund managers pick stocks that have the potential to beat the market return. For example, a large-cap fund invests 80% of its assets in the top 100 companies. Mid and small-cap funds invest 65% in companies ranking between 101 and 250 and 251 and beyond, respectively.
With such careful investment, if there are gains, the net asset valuation of an equity fund increases, which in turn increases your investment value. Other types include multi-cap, flexi-cap, ELSS funds, etc.
2. Debt-Funds
If you are an investor who seeks a stable income over the years and avoids higher risks from equities, a debt-oriented fund is another active fund for you. Such funds highly invest in lower-risk and fixed-income securities such as bonds, treasury bills, and other money market instruments.
Depending on duration, there are ultra-short to long-duration funds where you can stay invested for 3 months to up to 7 years. Money market, credit risk, and balanced funds are other types under the debt-oriented and active mutual funds.
3. Fund of Funds
Traditional active funds invest in equities or debts actively. On the other hand, Funds of Funds or FoF invest in other mutual funds. Thus, instead of maintaining a portfolio of equities or debts, fund managers of FoF actively manage the portfolios of other mutual funds.
Furthermore, a certain FoF might use funds from the same fund house or invest in funds by other fund houses. Thus, such an active fund allows for greater diversification by investing in a single scheme.
4. Other Active Funds
Other types of active funds include sectoral funds that focus on a certain industry or sector. These aim to capitalise on the sectoral growth. Certain index funds might be there where fund managers actively oversee investments to mimic market indices.
Conclusion
Active mutual funds involve an expert fund manager who oversees the fund and invests in underlying assets with careful strategies. There are different types of active funds that focus on equities and debt and manage investments actively to generate returns.
