Picking Index Funds: The Tracking Error Test in Mutual Fund Investment

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Two index funds follow the same Nifty 50 yet deliver different returns. The gap is tracking error, the degree to which a fund drifts from its index after costs and cash handling. For passive mutual fund investment, this single number matters more than the fund house's size or its advertising. Compare tracking error and tracking difference over three years, then check expense ratios, because a cheap fund that tracks poorly is not cheap at all. The best index fund is the most boring one: low cost, tight tracking. As a SEBI-registered investment advisor, 1 Finance offers purely advisory guidance with no products to sell and no commissions to earn. Download 1 Finance on Google Play today.

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