Passive management is the strategy of an investment fund of following a benchmark index to replicate the performance of the index, or the broader market.
The fund is made up in a way to mimic the index it wants to follow. The investor’s money does not underperform or outperform the index, but gives returns similar to what the benchmark achieves.
ETFs are passively managed funds.
Human intervention in passive management is minimal, and there is no active steering of securities to invest the pooled investor money in. At the time of investing, the client can see the makeup of the fund’s underlying assets as it comes with the clear mandate of replicating benchmark returns.