Nifty Index Funds with lowest tracking error

People these days are taking interest in mutual funds and due to this awareness, index funds, being a low-cost product, have garnered a lot of importance recently. Further, since most of the actively managed large-cap funds have not been able to defeat the index, it makes a lot of sense to invest in the index itself. Hence, index funds are something worth considering.

However, while investing in index funds, there are two things that investors need to bear in mind: a) tracking error and b) expense ratio. Hence, invest in an index fund that not only has a lower tracking error but also has a lower expense ratio. In this article, we have jotted down a list of hand-picked index funds that have a low tracking error.

For this, we have considered index funds that track Nifty Index, having assets under management (AUM) of Rs 50 crore or more. Further, to determine the tracking error, we have considered three-year returns of Nifty Index Funds, Nifty 50, and rolled over 10 years. Thereafter, we deducted the returns of Nifty Index Funds with that of Nifty 50 for each of the three-year rolling returns instance. After that, we took the median of all the instances and sorted them on the basis of having a minimum difference with respect to Nifty 50 Index.

While investing in index funds, even the lower expense ratio is important. Therefore, before investing, do compare their expense ratios. It must be noted that the expense ratio and the trailing returns showed in the above table are of direct plans. For regular plans, the expense ratio would be comparatively higher and the returns would be comparatively lower. Therefore, it is prudent to opt for direct plans of mutual funds.