Active funds vs Passive / index funds
Side-by-side comparison, when-to-use-each guide, and instant conversion. Reviewed for 2026.
Very specific sector bets, fund managers with verifiable long-term alpha, thematic investing.
Long-term wealth building, retirement savings, most of most people's portfolio.
| Aspect | Active funds | Passive / index funds |
|---|---|---|
| Fees | 0.75-1.5% p/a | 0.07-0.25% p/a |
| Long-term outperformance | ~15-20% of active funds beat index over 20yr | N/A (is the benchmark) |
| Tax efficiency | Lower (more trading) | Higher (less turnover) |
| Transparency | Variable | Full (you know exactly what you own) |
Frequently asked
Are there any active funds worth investing in?
Some exist — Terry Smith's Fundsmith Equity has outperformed over 15 years. But selecting the future winners in advance is extremely difficult: most outperforming funds in decade 1 underperform in decade 2. For most investors: a global index fund plus a small active satellite position is a reasonable compromise.
Which index fund should I buy?
Vanguard FTSE Global All Cap (covers UK, US, Europe, Emerging Markets) or Vanguard LifeStrategy 80/100 (global with bond allocation for risk management). These are the most recommended starting points by fee-conscious UK investors. Available via Vanguard Investor, Hargreaves Lansdown, or AJ Bell.