Comparison of passive vs active funds fees

Here’s a comparison of passive vs active fund fees as of 2025:

Passive Funds (Index Funds, ETFs)

Fee Range (Expense Ratio): Generally between 0.08% and 1%, but most index funds and ETFs are in the lower part of this range (often 0.1%–0.3%).

Why so low? Passive funds track a market index and require minimal active management—fund managers make relatively few trades and don’t need expensive research teams.

Regulation: In India, SEBI caps ETF expense ratios at 1%, but most are far below that.

Result: Most of your investment goes toward growth rather than fees.

Active Funds

Fee Range (Expense Ratio): Usually 0.5% to 2.5%, depending on asset class, fund manager, and fund house.

Why higher? Fees pay for research, analyst teams, continuous market tracking, and frequent buying/selling of assets.

Portfolio Turnover: Much higher, resulting in higher transaction costs.

Potential: The aim is to outperform (beat) the benchmark, but after fees, many struggle to do so in the long run.

Key Takeaways

Passive funds offer very low fees, making them highly cost-effective for long-term investing. Their returns closely mirror the chosen index, with little variance due to lower costs.

Active funds have much higher fees due to ongoing research, active management, and frequent trades. They may outperform the index, but that outperformance is not guaranteed, and higher costs can erode total returns over time.

Passive funds are best for investors seeking minimal fees and predictability, while active funds are suited to those willing to pay for potential outperformance and manager expertise.