Index funds aim to match a market at low cost; active funds try to beat it and charge more for the attempt. The evidence from S&P Dow Jones Indices’ long-running SPIVA reports is that most active funds in the US large-company market fall behind their index over long periods, after fees. Active funds are still chosen for reasons beyond beating an index, such as a specific income goal or a market where indices are hard to track.
This article sets out the costs, what the evidence does and does not show, and when people choose active management. It does not rank or recommend any fund. If you are new to the idea of index funds, start with what index investing is.
What Each Costs in Singapore
Costs are where the two differ most reliably. From MoneySense’s guides:
| Cost | Index ETF | Active unit trust |
|---|---|---|
| Yearly fund cost (TER) | About 0.03% to over 0.5% for similar ETFs | Usually 1% to 2.5% |
| Management fee inside that | Lower; MoneySense says passive keeps fees lower | 1% to 2% a year for active funds |
| Sales charge | None; you pay brokerage instead | 1.5% to 5% at some distributors |
| Trailer fee | Not usually | 20% to 60% of the management fee may go to the distributor |
Not every unit trust charges every fee, and some platforms have removed sales charges or rebate trailer fees. Our guide to how to invest in unit trusts explains each layer.
What 1.3% a year means. In our pros and cons illustration, S$100,000 at an assumed 5% a year before costs reaches about $255,400 after 20 years with 0.2% costs and about $199,000 with 1.5%. Illustration only, not a guarantee. An active fund has to earn the difference back every year just to draw level.
Index Funds vs Active Funds: What the Evidence Shows
The most widely cited data come from S&P Dow Jones Indices’ SPIVA U.S. Scorecard. The mid-2025 edition, with data to 30 June 2025, reports the share of US active funds that did worse than their benchmark index:
| Period to 30 June 2025 | All US large-cap funds trailing the S&P 500 |
|---|---|
| 1 year | 72.61% |
| 5 years | 86.91% |
| 10 years | 85.98% |
| 20 years | 91.03% |
Two points make the numbers stronger than they look:
- Closed funds are counted. SPIVA corrects for survivorship: of the 758 large-cap funds at the start of the 20-year period, only 34.70% still existed at the end. Funds that closed, often after poor results, are not quietly dropped.
- Index funds are excluded from the active fund count, so the comparison is fair to the active side.
The short version: in the most-studied market, most active funds trailed the index over 20 years after fees. The cost gap is the main reason, and it is known in advance.
What the Evidence Does Not Show
Be careful with these numbers:
- It is US data. SPIVA’s US report measures US funds against US indices. Funds sold in Singapore, and markets such as Asian shares or bonds, may show different results.
- The index has no costs. SPIVA compares funds with the index itself. A real index fund also trails its index by its own fees and tracking difference, though usually by much less.
- Short periods vary. Over one year, 27.39% of large-cap active funds beat the S&P 500 in that report. Some years are better for active managers than others.
- It says nothing about the next 20 years. Past results do not predict future ones, for either approach.
When Active Management May Be Chosen
People choose active funds for reasons that are not about beating a broad index:
- Markets where indices are thin or hard to track, such as some smaller bond markets, where an index fund may not exist or may track poorly.
- A specific goal, such as a target income level, lower swings, or excluding certain industries, that no index fund offers.
- Access through a channel such as CPFIS, where the range of index products is limited. Our guide to index investing with CPF and SRS lists what is available.
- A combination, with an index fund as the core and a smaller active holding alongside it.
If you go active, judge the fund by its total cost, how long the manager has run it, and whether its approach still makes sense when results are poor. Check that the fund is authorised or recognised for sale in Singapore on MAS’s OPERA database.
A Middle Route
Some investors use index funds through a robo-adviser instead of choosing funds themselves. That adds a management fee but takes away some of the effort. Our comparison of robo-advisers vs DIY index investing works through the costs.
What To Do Next
- For any fund, find the TER, sales charge, platform fee and any trailer fee, and add them up.
- Compare an active fund’s long-term record with an index fund in the same market, after all costs, and over at least 10 years. Remember that past performance does not predict future returns, and look at how far each fell in bad years.
- Read the prospectus and product highlights sheet, and check the fund on MAS’s OPERA database.
- Check that the distributor or platform is listed in the MAS Financial Institutions Directory.
- This is general information, not advice on your situation.
