What is a disadvantage of actively managed funds compared to index funds?

Actively managed funds typically incur higher fees than index funds due to the cost associated with employing a team of professional managers who analyze investment opportunities, conduct research, and make buy or sell decisions. These active management strategies can lead to greater expenses, including management fees and transaction costs, which can erode an investor's overall returns over time.

On the other hand, index funds aim to replicate the performance of a specific market index and typically have lower expenses since they require less hands-on management. This inherent difference in cost structure is a key factor for investors when comparing the two types of funds, as higher fees in actively managed funds can have a significant impact on net returns, especially over longer investment horizons. Thus, the higher fees associated with actively managed funds are a notable disadvantage when considering investment options.