Passively managed funds come in two types: funds with brains and funds without. In the former (also called ‘Smart Beta’ funds), the fund is run based on a preset strategy or an algorithm. For example, there are mutual funds which invest in a mix of Nifty and government bonds. The weightage of each asset class is determined by the Price/Earnings (or P/E)7 of the Nifty. In other words, based on an allocation table, the fund invests more in the Nifty when markets are cheap and less when markets are expensive.
