Choose by comparing what a fund owns, what it is trying to achieve, what it costs in your share class, and how it has performed against a suitable benchmark—not by the words “FTSE,” “index” or “active” alone. An index fund follows a rule-based benchmark; an active fund gives its manager discretion to select investments. Neither approach is automatically better or right for every investor.
What is the difference between a FTSE index fund and an active fund?
A FTSE Russell index is a benchmark: a hypothetical portfolio designed to represent a market or segment. You cannot invest directly in the index. A fund or ETF issuer licenses the index and creates a product that aims to track it. As FTSE Russell explains, index-tracking investments seek to mimic an index, while active investments use manager decisions in an attempt to outperform a market or segment.
“Passive” describes the fund’s approach, not the absence of decisions. The index provider sets rules for selecting and weighting constituents; the fund manager decides how to implement the tracking mandate, sometimes using a sample rather than holding every constituent. An active manager instead has discretion to choose investments under the fund’s stated objective.
Keep the roles distinct: FTSE Russell designs and calculates an index; the fund issuer manages the product, its holdings and its charges. The index name alone does not tell you the fund’s full exposure or how closely it has tracked its benchmark.
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Start with the benchmark and the portfolio
Two funds described as index funds can hold very different investments. Their benchmarks may cover different countries, company sizes, market segments or investment styles, and may use different rules for eligibility, weighting and rebalancing. “FTSE” identifies the index provider, not a single universal portfolio.
Before comparing returns, check whether the benchmark represents the exposure you actually want. FTSE Russell highlights representativeness, transparent and objective rules, investability and cost efficiency as considerations in index design. Its index resources provide access to index information and methodologies; use the methodology for the particular benchmark rather than assuming all indices follow the same construction or schedule.
For example, FTSE Russell says reconstitution for its Russell U.S. index family moves from annual to semiannual in 2026. That schedule applies to that family, not every FTSE Russell index; check the relevant methodology and current announcements for a specific benchmark. See the Russell U.S. Indexes page.
Compare costs beyond the expense ratio
Look up charges for the exact fund and share class you could buy. The expense ratio is important, but it is not necessarily the entire cost. Depending on the product and account, other costs can include transaction fees, sales loads and trading costs. The SEC’s guide to fees and expenses explains how charges can affect an investment portfolio.
Index tracking can reduce some research and security-selection expenses, but “index” does not guarantee the lowest total cost in every comparison. Compare the actual charges on both candidates, including any costs associated with buying or selling them. The SEC’s overview of index funds also notes that expenses and trading costs can affect results.
Check tracking and net performance
A tracker may not match its index exactly. Fees, expenses, trading costs and sampling can cause its returns to diverge from the benchmark. The SEC puts it plainly: “An index fund may underperform its index because of fees and expenses, trading costs, and tracking error.” See Investor.gov’s explanation of index funds.
When assessing a tracker, compare its fund-level returns after fees with the benchmark over consistent periods, and review the fund’s reported tracking difference. Do not treat the index’s headline return as the return an investor in the fund would have received.
For an active fund, compare net-of-fee returns with a fair benchmark that reflects its stated market and investment style. Use multiple relevant periods rather than letting one unusually strong or weak stretch decide the choice. The comparison is only informative if the benchmark and the fund’s actual exposure are reasonably aligned.
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In its SPIVA U.S. Year-End 2025 scorecard, S&P Dow Jones Indices reported that 79% of active large-cap U.S. equity mutual funds underperformed the S&P 500 over the one-year period ending in 2025.
That result describes one category, benchmark, country and period. It is historical evidence, not a forecast, and it does not establish that active funds in every market or category will underperform—or that every index fund will track its benchmark perfectly. Pair performance statistics with a candidate fund’s own costs, benchmark and tracking record.
Use this checklist to compare two funds
- Identify the objective and benchmark. Is the fund designed to track a named index, or does it pursue an active objective? Is the benchmark a fair comparison for the exposure you want?
- Inspect the benchmark’s coverage and rules. Check its geography, company sizes or segments, eligibility rules, weighting, concentration and rebalancing methodology.
- Review the fund’s implementation. For a tracker, find out whether it uses full replication or sampling and compare tracking difference and fund-level returns. For an active fund, understand the discretion its mandate allows.
- Add up the relevant costs. Check the actual share class’s expense ratio, any applicable loads or transaction fees, and trading costs.
- Compare net results over relevant periods. Use consistent dates and a suitable benchmark; do not substitute an index’s return for the fund’s return.
- Assess portfolio fit and risk. Consider diversification, concentration, volatility and liquidity alongside your goals, time horizon and ability to tolerate losses.
- Check account and jurisdiction details. Tax treatment, protections, fund structures, share classes, fees and product availability depend on where you live and the account you use.
How to choose for your circumstances
An index tracker may suit an investor seeking exposure that follows a defined benchmark and who is comfortable accepting that benchmark’s composition and risks. An active fund may suit someone who prefers a manager to make discretionary investment decisions and accepts the fund’s costs and the possibility that it will not outperform its benchmark. Those are differences in approach, not guarantees about future returns.
There is no basis here to name a fund to buy without knowing your country, goals, time horizon, tax situation, account type, risk tolerance and available products. Review current fund documents and the applicable index methodology before deciding.
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