Passive investment can refer to 2 concepts:
- An investment strategy that follows the composition and returns of existing market instruments (e.g. Indices).
- A buy-and-hold strategy in which investor purchases securities with the intention of keeping them long term, without making changes to the composition of the portfolio.
The 2 are not necessarily mutually exclusive (e.g. an investor can invest in an index-linked ETF which is a passive investment, even though the composition of an ETF itself can change dynamically, depending on the composition of underlying index). Passive investment strategy generally refers to approach whereby investor does not make active investment decisions on regular basis.