Which index funds have the lowest tracking error and tracking difference?

An in-depth analysis by Cafemutual of index funds tracking errors shows that almost 10% of index funds, about 20 out of 204, have a tracking error of 0.06% or below.

Cafemutual also looked at the tracking difference of index funds.

The tracking error of a passive fund is the annualized difference between the standard deviation of the fund and its benchmark while the tracking difference is the difference between returns generated by the fund and its benchmark.

In simple terms, the lower the percentage of tracking error and tracking difference, the better is the fund.

In large cap, SBI Nifty Index Fund has the lowest tracking error of 0.02%. It is followed by HDFC Nifty 50 Index Fund at 0.03%.

Rounding off the top three is HDFC BSE Sensex Index Fund with tracking error of 0.04%, along with ICICI Prudential Nifty 50 Index Fund, Motilal Oswal Nifty 50 Index Fund, Navi Nifty 50 Index Fund, UTI BSE Sensex Index Fund and UTI Nifty 50 Index Fund, all having the same 0.04% tracking error.

In the Midcap category, SBI Nifty Midcap 150 Index Fund ranks first with 0.05% tracking error. Next is Motilal Oswal Nifty Midcap 150 Index Fund at 0.06% and HDFC Nifty Midcap 150 Index Fund at 0.07%.

Among small cap index funds, SBI Nifty Smallcap 250 Index Fund takes the top spot with 0.15% tracking error. It is followed by Groww Nifty Smallcap 250 Index Fund and HDFC Nifty Smallcap 250 Index Fund, both having tracking error of 0.16%, while Bandhan Nifty Smallcap 250 Index Fund and ICICI Prudential Nifty Smallcap 250 Index Fund share the third position with tracking error of 0.18%.

In sectoral/thematic funds, ICICI Prudential Nifty IT Index Fund and Navi Nifty Bank Index Fund jointly have the lowest tracking error of 0.07%. Similarly, among factor funds, Bandhan Nifty 100 Low Volatility 30 Index Fund has the lowest tracking error of 0.06%.

Groww Nifty Total Market Index Fund leads the Multicap category with 0.11% tracking error.

In Target Maturity funds, Bandhan Crisil IBX Gilt June 2027 Index Fund is the first with 0.05% tracking error.

Among constant maturity debt funds, Edelweiss Crisil IBX 50:50 Gilt Plus SDL Short Duration Index Fund has the lowest tracking error of 0.39%.

Let’s look at the data to know ranking based on tracking error:

Large Cap:

Midcap:

Small Cap:

Sectoral/Thematic:

Factor:

Multicap:

Target Maturity:

Debt:

Large and Midcap:

Tracking difference

ICICI Prudential BSE Sensex Index Fund has the lowest tracking difference of -0.36%  in large cap fund category. It is followed by UTI Nifty 50 Index Fund at -0.39% and UTI BSE Sensex Index Fund at -0.41%.

In midcap funds, Motilal Oswal Nifty Midcap 150 Index Fund takes the first position with tracking difference of -0.90%. Nippon India at -0.99% and SBI Nifty Midcap 150 Index Fund at -1.02% are the next two in the category.

Among small cap index funds, Motilal Oswal Nifty Smallcap 250 Index Fund has the lowest tracking difference of -1.15%, followed by SBI Nifty Smallcap 250 Index Fund and Edelweiss Nifty Smallcap 250 Index Fund, both at -1.32%.

In the sectoral/thematic segment, HDFC Nifty Realty Index Fund has the lowest tracking difference at -0.87%, taking 1st place.

For factor funds, UTI Nifty200 Momentum 30 Index Fund has the lowest tracking difference at -0.45%, followed by UTI Nifty 500 Value 50 Index Fund at -0.73%, and UTI Nifty Midcap 150 Quality 50 Index Fund at -0.8%.

Let’s look at the tracking difference:

Large cap:

Mid Cap:

Small Cap:

Sectoral/Thematic:

Factor:

Multicap:

Target Maturity:

Debt:

Large and Midcap: