Unlike an index fund, an actively managed fund employs a manager or a team of managers to continually monitor and adjust the contents of the fund, buying and selling holdings within the fund according to market conditions and predictions.

There is an argument that market prices fully reflect available information, and therefore that no active manager can consistently outperform the market average.  Others argue that a small number of managers have done it nevertheless, especially during down markets.  When the extra cost of active management is considered, it is not clear whether active management is of any benefit over an index fund.

See also: