Active management is to manage the portfolio of funds with the use of human capital. Active managers rely on analytical research, personal judgment, and forecasts to make decisions on what securities to buy, hold, or sell.

1. Active Management

3. What is Active Management?
• Active management is to manage the
portfolio of funds with the use of
human capital. Active managers rely
on analytical research, personal
judgment, and forecasts to make
decisions on what securities to buy,
hold, or sell.

4. Active Management
Process

5. The active management process
usually involves three steps:

6. 1. Planning
• The planning process involves the identifying of
the investor’s objectives and constraints. It can
involve risk and return expectations, liquidity
needs, time horizon, and legal and regulatory
requirements. From these all aspects an
investment policy statement can be created.
Reporting requirements, investment strategy,
investment communication, manager fees and
rebalancing guidelines are outlined in the
investment policy statement.

7. 2. Execution
• This execution involves in the
implementation of the portfolio with its
construction and revisions. The Active
managers integrates their investment
strategies with the capital market to the
expectations to select specific securities for
the overall portfolio.

8. 3. Feedback
• This step involves the management of
exposures to the investment in which it is
noticed that if the portfolio is within the
mandates of investment policy statement
by rebalancing it. To check if the
investment objectives are met, the portfolio
is periodically evaluated by the investors.

9. Advantages of Active Management
Some motivations for investors to lean towards active management
are the following:
 Investors believe that actively managed funds can outperform the
market.
 Investors believe they can pick the most skilled active managers.
 Investors may want to manage volatility differently than the
overall market.
 Investors may want to follow a strategy that is in line with their
personal investment goals.
 Investors can get exposure to alternative investments that are
uncorrelated with the market.

10. Disadvantages of Active
Management
• Active management can have worst results
if the investment choices are not right.
Even the active management performs well
but still the active managers mostly use to
way of the passive managers. It begins to
show index-like characteristics to diversify
its investments, if the active management
funds increases.