Advice matters
Should your KiwiSaver fund be active or passive?

If you’ve been looking into your KiwiSaver options, you may have heard people talking about “active” or “passive” investing.

But what does that really mean? Here’s what you need to know.

What’s the difference?

When people talk about active management, they are referring to an investment style in which a fund manager actively chooses the investments its funds have money in and aims to deliver a better return than the wider market.

Passive managers, in contrast, invest to mirror the returns of the market, usually using a specific index.

Some managers, including some in KiwiSaver, are not purely active or passive and instead offer a blended approach, with some active investments mixed in with some underlying passive funds.

What does that mean for fees?

A passive management style tends to be cheaper for managers to run, and generally means they charge lower fees.  While active managers might need to conduct regular research and analysis to inform their decision making, passive funds are investing following their pre-set rules and often use more of a “buy and hold” approach. 

When you’re comparing active and passive managers’ fees, it can help to look at the returns they have delivered after fees – that will help you to determine whether they are delivering returns that are worth paying for. The Financial Markets Authority has been turning its

attention to value for money in recent years, and reminding investors that it’s what they get for their fees that counts.

KiwiSaver is a long-term investment, so differences in fees and overall returns can compound over the years to create a more significant gap in outcomes.


In very general terms, and depending on the index used, passive funds often have more diversification across a market or sector than active funds. Index funds, for example, spread their risk by investing across all the companies in their target benchmark.

Active managers sometimes hold fewer investments because they have had to select, and then manage, everything that goes into the fund.

Your investment horizon and risk tolerance

A key part of deciding which funds are right for you will be to consider your investment horizon and risk tolerance. If you have a long time until you turn 65 and can access your KiwiSaver investment, you may be able to take more risk.

But if you’re saving for a first home and plan to withdraw soon, you might want to dial the risk right back.

Because passive funds are designed to track the market, you can expect them to provide softer returns when the market is weaker, but you can generally ride the recovery when it comes. Active managers, in contrast, may try to limit the downside or deploy strategic investing decisions to smooth out the bumps during a period of volatility – but there’s no guarantee they will always be able to make the right picks, or that they will get the full impact of the upside.

Check your goals

Whatever investment decision you make, it is important that your KiwiSaver fund decision aligns with your goals. Your KiwiSaver investment can be a big part of your financial plan, and it is important to get the settings right. An adviser can be an invaluable asset in helping you maximise your investments, and get the most out of the scheme.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.