Passive funds follow a rule-based approach to investing with no active stock selection. They follow an index (like Nifty 50 or Nifty 500) and try to replicate its performance by buying all stocks with the same weight as in the index. In the replication process, several practical challenges can prevent the fund from achieving the same return as the benchmark, resulting in a slight deviation. These deviations in the returns are measured in terms of tracking difference (TD) and tracking error (TE).
