Nifty Next 50 Index Funds with lowest tracking error

Published: November 9, 2020 at 5:26 pm

Last Updated on August 22, 2022 at 11:12 pm

We shall look at the tracking error of Nifty Next 50 index funds from our tracking error report sheet to find out funds that have lowest tracking error. You can download this sheet to appreciate deviations from the benchmark in an intuitive way.

In our previous study on how a market crash affects index funds, we had established the difficulties of measuring tracking error as a standard deviation and also how bad the tracking error can be if we use ETF price data (the only quantity that matters to retail investors) instead of ETF NAV data  (widely used).

We shall look at the monthly deviations of six Nifty Next 50 index funds over the last two and three years. The primary quantity measure is the monthly return of Nifty Next 50 TRI minus monthly return of the Nifty Next 50 index fund.

This return difference should typically be positive because the fund return will be lower than the index return due to expenses. If this return difference is negative, it is a red flag. This means the fund manager has difficulty tracking the index over a month.


Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥

We shall look for funda with a low return difference spread. That is we find the max return difference and min return difference and take the difference. This is the return spread. Data for the last two years is shown below.

FundReturn difference spread (last 2Y)
L&T Nifty Next 50 Index Fund(G)-Direct Plan0.51%
UTI Nifty Next 50 Index Fund(G)-Direct Plan0.52%
ICICI Pru Nifty Next 50 Index Fund(G)-Direct Plan0.74%
DSP NIFTY Next 50 Index Fund(G)-Direct Plan1.39%
IDBI Nifty Junior Index Fund(G)-Direct Plan1.57%
Motilal Oswal Nifty Next 50 Index Fund(G)-Direct Plan1.88%

These funds have a spread of less than 1% over the last two years and the last three years also (see sheet below for full data for 34 funds).

  • L&T Nifty Next 50 Index Fund(G)-Direct Plan
  • UTI Nifty Next 50 Index Fund(G)-Direct Plan
  • ICICI Pru Nifty Next 50 Index Fund(G)-Direct Plan

The next parameter is the no of negative return difference instances.

FundTotal no of return differencesno of neg return differences
ICICI Pru Nifty Next 50 Index Fund(G)-Direct Plan46964
IDBI Nifty Junior Index Fund(G)-Direct Plan46992
L&T Nifty Next 50 Index Fund(G)-Direct Plan11724
DSP NIFTY Next 50 Index Fund(G)-Direct Plan39583
UTI Nifty Next 50 Index Fund(G)-Direct Plan469142
Motilal Oswal Nifty Next 50 Index Fund(G)-Direct Plan19279

Among funds with 400-plus return difference history (last two years) the ICICI and IDBI funds have performed well. UTI has a higher no of return differences but this is not something investors need to lose sleepover. If anything it only shows a low expense error does not mean a low tracking error. The DSP fund has also done well.

Download the freefincal index fund and ETF tracking error data sheet – Nov 2020 (link to excel file, will open on all spreadsheet apps)

Do share this article with your friends using the buttons below.

🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
Follow Freefincal on Google News
Follow Freefincal on Google News
Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal Youtube Channel.
Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! 
Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let's Get Rich with Pattu Podcast
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
Lets Get RICH With PATTU podcast on YouTube
Let's Get RICH With PATTU podcast on YouTube.
🔥Now Watch Let's Get Rich With Pattu தமிழில் (in Tamil)! 🔥
  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Have a question? Subscribe to our newsletter using the form below.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!

About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl-version covers of "Chinchu Gets a superpower".
Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)