What is generally true about mutual funds and management fees?

Passive management leads to lower fees because passive funds, such as index funds, are designed to replicate the performance of a specific market index rather than trying to outperform it through active stock selection and timing. This approach typically requires less research, fewer transactions, and less active oversight, allowing fund managers to operate with lower overhead costs. As a result, these cost savings are often passed on to investors in the form of lower management fees.

In contrast, actively managed funds require a team of analysts and portfolio managers who conduct extensive research, monitor investments closely, and make frequent trades in an attempt to generate higher returns. This increased level of management and the associated transaction costs generally result in higher fees for investors.

Understanding this distinction helps investors make informed decisions about their investment choices, especially when considering the cost-effectiveness of different fund management styles. While some funds may charge similar fees, it is not accurate to say that all funds have uniform fees or that they are indifferent to the management style employed.