ETF Tracking Error: Is Your Fund Losing 1.5%?
Not all ETFs perfectly copy their index. Some lag behind quietly, eating your returns. This hidden gap — called tracking error — can cost you thousands annually without you even noticing it.
A 1.5% annual tracking gap on ₹5 lakh ETF investment = ₹7,500 lost — that's 3 months of your Swiggy bill.
Your ETF can silently lose this much versus its index every year
Key Takeaways
Check your ETF's tracking error and tracking difference on AMFI or the fund house website before investing or holding.
Compare ETFs on the same index — choose the one with the lowest expense ratio AND lowest tracking error combination.
Avoid ETFs with low trading volumes on stock exchanges — poor liquidity worsens tracking and increases your buy/sell cost.
Not all ETFs perfectly copy their index. Some lag behind quietly, eating your returns. This hidden gap — called tracking error — can cost you thousands annually without you even noticing it.
Here's what happened: Tracking error measures how consistently an ETF mirrors its benchmark index — lower is better for passive investors.. Even index ETFs can diverge from their benchmark due to fund expenses, cash drag, and rebalancing delays by the fund manager.. In India, tracking errors vary widely across Nifty 50, Sensex, and sectoral ETFs — some funds diverge by over 1% annually..
What you should do: Check your ETF's tracking error and tracking difference on AMFI or the fund house website before investing or holding.. Compare ETFs on the same index — choose the one with the lowest expense ratio AND lowest tracking error combination.. Avoid ETFs with low trading volumes on stock exchanges — poor liquidity worsens tracking and increases your buy/sell cost..
Tracking difference (total return gap over a year) matters more than tracking error for long-term investors — a fund can be 'consistent' yet consistently underperform its index.
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This article is reported by GoCredit's Editorial Team based on the source above. GoCredit synthesises, contextualises, and adds India-borrower-relevant analysis. We are not the original publisher.