What is the difference between an actively managed fund and an index fund?

Actively managed funds and index funds differ in their investment strategy and management style.

Actively managed funds are managed by a professional fund manager or team who actively try to beat the market by selecting and buying individual stocks, bonds, or other securities. The fund's performance is directly linked to the performance of the underlying investments in the fund's portfolio. Actively managed funds typically have higher fees due to the cost of research, analysis, and trading involved in stock selection.

On the other hand, index funds aim to match the performance of a specific market index, such as the S&P 500, by investing in all or a representative sample of the securities that make up the index. They are typically passively managed, meaning that the fund manager aims to closely replicate the performance of the index rather than trying to outperform it. As a result, index funds tend to have lower fees and can offer more tax efficiency due to their lower turnover.

Overall, the main difference between actively managed funds and index funds is the investment strategy and management style. Actively managed funds aim to outperform the market, while index funds aim to track it.