What is 'Passive management' in Investing?

Also known as index investing, this refers to an investment strategy where an investment portfolio is constructed in such a way that it mirrors the composition of the broader market index. This is in contrast to active management of funds where fund managers try to pick individual stocks that they believe will outperform the broader market and thus earn higher returns. Passive investors believe that since financial markets are efficient, it is impossible for most investors with ordinary investing skills to earn returns higher than the index. So they recommend that the average investor should simply invest money in low-cost index funds.