Executive Summary: Mutual funds offer both active investing and passive investing. Actively managed funds are handled by  professionals who make decisions of buying and selling units to get the best returns. Passive funds follow the movement of the value of an index or asset. Active funds are more expensive as compared to Passive Funds. But there is portfolio churn involved. You can have an ideal allocation in both kinds of funds based on your financial goals, risk appetite and risk tolerance.​

​Active Investing means making all investment decisions by yourself. You buy and sell stocks, mutual funds and other assets with a view to generate the best returns and get capital appreciation. Passive investing is the opposite. It is basically mimicking a pattern of an investing benchmark or index .
Mutual funds provide both active investing and passive investing.

• In an active fund, the fund manager picks stocks and makes buy and sell decisions in order to get the best returns. The funds are invested based on the investment objective. So if it is a large-cap equity fund, the funds will be invested in big companies with huge capital, assets etc. If it is a debt fund, the money will be invested in bonds, Government securities etc. The fund manager has to be highly skilled in making the best of the opportunities. He will usually have a team of researchers and analysts who can give him intelligence based on which he can take the right decisions on buying and selling the right assets at the right time. Active funds are more expensive to purchase as there are professional managers and resources involved actively and there is portfolio churn. They are professionally managed so the risk is less and the managers handle volatility and other factors.
• In a passive mutual fund, the fund manager mimics the underlying asset like an index or invests in a commodity. The funds received are invested in the underlying index or asset and the returns depend on the performance of the underlying asset. For example if it is a fund based on BSE 100, the the amount of the investors will be invested in the constituents of the BSE 100 in the same proportion as it is in the BSE 100. When the BSE 100 rises, the fund value will rise and vice-versa. There is not much stock picking or asset tracking involved. There is not much of high end expertise required or research and analysis to be done on a continuous basis. Therefore these passive funds are less expensive. There is less risk of fund manager making bad investment decisions. Portfolio churn is less. Index funds, Gold funds, Exchange Traded funds are passive investment vehicles. 

​In India, active funds are more popular as they have been performing better for a long time. But as per a recent report from S&P Dow Jones Indices LLC, large cap Equity funds in India have not been performing as well as the ELSS funds and Small and Mid-Cap Equity funds when compared to the benchmark. Moreover the survival rate and consistency ins style as per investment objective were poor in large cap equity funds and Small and Mid-Cap Equity funds as compared to ELSS funds.
Even Government Bond funds have under performed and the survival rate and consistency in style as per investment objective is poor. You can read the report here.

​Here is a comparison of a few of MFs, Index Funds and Exchange Traded Funds

​There are different instruments for investment. Consider your financial plan and short-term and long-term financial goals to decide on the best investment opportunities for you. If you are a conservative investor, you can invest a major part of your investment allocation in index funds and ETFs and a minor part in active assets such as active mutual funds. If your risk appetite and risk tolerance are higher than that of a conservative investor, you can choose to invest a higher proportion in actively managed funds.