Active Vs Passive Investing

Before you decide which investment style one should go with, understand the difference between the two:

Active Investment Style: Your portfolio is being monitored by the fund manager & their team and they try to generate alpha i.e. excess return over scheme' benchmark return using their expertise and experience. However, if investment calls go wrong by the fund manager, it impacts the scheme performance adversely. Also, any change in the fund manager, the respective scheme performance may get impacted and the future depends on the new fund manager skills.

The products available under active fund management are generally all diversified or sectoral funds in the equity segment.

Passive Investment Style: Under passive investment, you don't get any dedicated fund manager as your investment portfolio is just a replica of the respective benchmark. The return generated under this style is more or less equivalent to the benchmark performance. Mostly monitoring or trading of a scheme portfolio is done under a system-based automated process that is predefined and without the interference of human emotions. The scheme just tracks their respective benchmark portfolio and becomes the replica of it by investing in the same stocks and in the same weightage.

The products available under passive fund management are generally ETF (Exchange Traded Funds), Index Funds, FOF in equity segments.

It has been observed over a long period of time (+7 years), actively managed schemes try to beat the passively managed schemes. However, in a short span of time, it may be possible that passive funds do much better than active funds. 

Although, active funds schemes are costlier than passive schemes as their expense ratio is higher due to the fund manager & their team cost, however, active funds have more potential to generate better returns, and therefore it justifies the higher cost. In the case of active funds, the fund manager pics the specific stock after due research to get the best possible return. When to buy or sell any stock, it's total in the jurisdiction of a fund manager.

However, studies have shown not all active funds are doing well and able to beat their benchmark. It is better to do some homework to select any fund house and further scheme. One should see a scheme track record over a period of time across all phases of the market, not just 3-5 years, verifying other statistical parameters like standard deviation, beta, alpha, churning ratio, expense ratio, etc. and then take a call to choose a particular scheme. 

Conservative investor may prefer the passive style who don't want to monitor their investment portfolio frequently, and those want an aggressive bet and can monitor their investment portfolio, can rely on fund manager expertise.