Investment Jargon: Passive Fund

Passive Fund

A fund that tracks an index. For example a fund that tracks the FTSE 100 stock index would buy all the stocks in the index with the same weights as the FTSE 100. In this way the fund will track the upward and downward price movements of the index very closely. Any deviation is known as tracking error. Passive funds try to use economies of scale to track as cheaply as possible and their fund management fees tend to be very low, although this depends on the asset class.​