Active Management

Active management is an investment strategy where a fund manager actively makes decisions regarding the selection and timing of investments.
Active Management
3 min

Active management is an investment approach where a fund manager utilizes their expertise to select portfolio investments and determine when to buy, retain, or divest assets. The objective is to surpass market index performance or minimize losses during market declines.

What is active management in investment?

Active management is an investing approach that involves a fund manager who manages an investment portfolio with an aim to provide investors with a higher return than the market or benchmark.

This approach believes that an experienced portfolio manager can identify inefficiencies in the market by tracking indices, stocks, and other securities. When there are market inefficiencies, they would correct the inefficiencies over time and move towards the equilibrium. Fund managers identify inefficiently priced stocks, invest in them, and make a profit over time.

Suppose, a fund manager identifies mispriced stocks and other securities. He/she can profit from the price correction by employing an investment strategy. But how? Let us explore.

A qualified and experienced fund manager can identify undervalued or overvalued stocks. Once identified, two things can be done to make a profit:

  • A fund manager buys undervalued stocks and holds them for a certain period until the price corrects to its actual value.
  • In the case of overvalued stocks, fund managers short-sell them now to square them off at a later date to make a profit.

Active management in investment is often used by fund managers to modify the associated risks. They adopt the right strategy to create less volatility in the portfolio in comparison to the benchmark.

If you want to outperform a market index (say, Nifty or Bank Nifty), you can adopt an active management strategy. It will help to create a portfolio that provides you with a better return than a benchmark or market index. Active management needs special skills from fund managers. That’s why the cost of active management is higher than passive management.

You may explore the Bajaj Finserv Platform to explore 1000+ actively managed mutual funds. You may choose to invest in one or multiple mutual fund schemes to diversify and get the best return.

What is the process of active management?

There are 3 steps in the active management process:

  1. Planning
  2. Execution
  3. Feedback

Step 1: Planning stage

In this stage, an investor’s profile is created. It will assess an investor’s:

  • Risk profile
  • Expectations of the return
  • Need for liquidity
  • The time frame of investment
  • Tax issues
  • Legal and regulatory requirements

After assessing thoroughly, the fund manager creates your IPS or investment policy statement. It includes:

  • Reporting requirements
  • Rebalancing guidelines
  • Investment communication
  • Fee of the fund manager
  • Strategy and style of investment

The planning stage also requires the fund manager to create the basis for the portfolio. It will include:

  • The formation of capital market expectation
  • Make expected forecasts for the risk-return profile of the stocks and other securities

Finally, the allocation of assets in a portfolio should be chosen strategically. It will be done as per the asset class weightage.

Step 2: Execution stage

This stage requires the fund manager to implement the portfolio and optimise it when required. Per the expectations of the investor, the active manager would choose and buy stocks for the portfolio. To achieve projected ROI (return on investment) as per the risk profile and objectives, the fund manager will optimise your portfolio by efficiently combining assets.

Step 3: Feedback stage

Rebalancing your portfolio is essential in active management to outperform benchmark indices. When you find any underperforming stock or security, you have to sell it and replace it with any prospective one for a better return. This will ensure that your portfolio fulfils the IPS mandate.

As an investor, you should evaluate the performance of your portfolio from time to time. This will ensure that your investment and financial goals are fulfilled as per your expectations.

You may check the lumpsum calculator or the SIP calculator to compare mutual funds on the Bajaj Finserv Mutual Fund Platform for assessing your mutual fund’s performance.

Top 3 Strategies of Active management

Below mentioned are the strategies for Active Management:

Strategy 1: Choosing the right stock

An essential part of the active management of funds to outperform benchmark indices is to choose the right stocks. You will have to identify the undervalued or overvalued stocks and then invest in them or short-sell them to make a profit. A fund manager usually carries out fundamental analysis, quantitative analysis, and a top-down approach to identify undervalued or overvalued stocks.

Strategy 2: Sectoral rotation

A fund manager can outperform the return from benchmark indices by adjusting portfolio allocations according to the economic outlook, changing market conditions, and thematic investing. You can rotate your investment among stocks from under sectors that can give you high returns in the long term. Some of them are stocks dealing with hydrogen, lithium batteries, and other renewable energy.

Strategy 3: Timing the market

Many investors make high profits by identifying market trends and patterns of various stocks. If you combine historical price and volume data along with technical indicators and chart pattern analysis, you can forecast supports and resistances. With the help of technical analysis, contrarian investing, and sentiment analysis, you may time the market while investing to make a profit.


Fund managers usually use a combination of various investing strategies to outperform the benchmark indices such as Nifty, Bank Nifty, or others. The success of active management in investment depends upon the quality of financial analysis, risk management, choice of stocks in the portfolio, investment timing, and proper rebalancing.

If you want to beat the market, mutual fund investing can be the right choice. Have you checked the Bajaj Finserv Mutual Fund Platform? You will find more than one thousand mutual fund schemes to choose from. Either make a lumpsum investment or a SIP investment to get a high return on your investment. What are you waiting for? Start investing now to get maximum return in the long run. 

Calculate your expected investment returns with the help of our investment calculators

Investment Calculator

SIP Calculator

Lumpsum Calculator

Step Up SIP Calculator

Mutual Fund Calculator

Brokerage Calculator

FD calculator

Frequently asked questions

What is the meaning of active management?
The meaning of active management in investment is to analyse the market and stocks to identify the undervalued or overvalued ones to make a profit and beat the market indices in terms of returns.
What is considered active management?
Active management is an investment strategy that involves a fund manager, who uses different strategies to give you higher returns than benchmark indices (such as Nifty, bank Nifty, and others). Active managers carry out analytical research and fundamental/technical analysis to select undervalued or overvalued stocks, invest in those stocks or short-sell them to make a profit by using market inefficiencies.
What is the aim of active management?
The aim of active management is to make use of market inefficiencies, identify undervalued/overvalued stocks, and invest/short-sell them to get higher returns than the market’s benchmark indices.
What is active management or passive management?
Active management involves the creation of a portfolio (of stocks and other securities) by fund managers to generate higher than benchmark indices. Passive management involves investment in stocks or other securities to match the performance of benchmark indices such as Bank Nifty or others.
Show More Show Less

Bajaj Finserv App for All Your Financial Needs and Goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

  • Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.
  • Explore and apply for co-branded credit cards online.
  • Invest in fixed deposits and mutual funds on the app.
  • Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
  • Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
  • Apply for Insta EMI Card and get a pre-approved limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on No Cost EMIs.
  • Shop from over 100+ brand partners that offer a diverse range of products and services.
  • Use specialised tools like EMI calculators, SIP Calculators
  • Check your credit score, download loan statements and even get quick customer support—all on the app.

Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.

Do more with the Bajaj Finserv App!

UPI, Wallet, Loans, Investments, Cards, Shopping and more


Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.