Ten Index funds with the largest return deviation over the past year

Published: July 29, 2022 at 6:00 am

In this article, we tabulate index funds with the largest deviation in 1Y return (trailing as of 8th July 2022) from their corresponding indices.

Regular readers may be aware that the most practical way to evaluate how efficiently an index fund is tracking its index is not the tracking error” but the return difference. For example (in the context of this article), one-year fund return minus one-year index fund. Our monthly index fund tracking error screeners offer this data (1,2,3…9 years). The current listing is based on the July 2020 Index fund screener.

This return difference should be negative and small. If it is positive, then the index fund has beat the index. Meaning such a fund has a huge tracking error. This usually happens when the AUM is small. See, for example, These five index funds beat their indices! Why you should avoid them!

The 1Y return difference (1Y index fund return minus total returns benchmark return) is tabulated below for all 43 index funds with a 1Y history.

Funds with the largest return difference defined as one standard deviation more than the median are shown in bold.

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Scheme Name1Y Return Difference
Motilal Oswal Nifty Smallcap 250 Index Fund(G)-Direct Plan-0.9144
Taurus Nifty Index Fund(G)-Direct Plan-0.8753
Nippon India Nifty Smallcap 250 Index Fund(G)-Direct Plan-0.8243
L&T Nifty Next 50 Index Fund(G)-Direct Plan-0.6533
Sundaram Nifty 100 Equal Weight Fund(G)-Direct Plan-0.6275
Nippon India Nifty Midcap 150 Index Fund(G)-Direct Plan-0.6111
Aditya Birla SL Nifty 50 Equal Weight Index Fund(G)-Direct Plan-0.5967
UTI Nifty200 Momentum 30 Index Fund(G)-Direct Plan-0.5782
Motilal Oswal Nifty Next 50 Index Fund(G)-Direct Plan-0.5384
DSP Nifty 50 Equal Weight Index Fund(G)-Direct Plan-0.5357
Motilal Oswal Nifty 500 Index Fund(G)-Direct Plan-0.4797
Nippon India Nifty 50 Value 20 Index Fund(G)-Direct Plan-0.4674
Tata S&P BSE Sensex Index Fund(G)-Direct Plan-0.4618
ICICI Pru Nifty Next 50 Index Fund(G)-Direct Plan-0.4279
UTI Nifty Next 50 Index Fund(G)-Direct Plan-0.4203
Franklin India NSE Nifty 50 Index Fund(G)-Direct Plan-0.4139
Motilal Oswal Nifty Bank Index Fund(G)-Direct Plan-0.3933
Aditya Birla SL Nifty 50 Index Fund(G)-Direct Plan-0.3672
LIC MF S&P BSE Sensex Index Fund(G)-Direct Plan-0.3559
ICICI Pru S&P BSE Sensex Index Fund(G)-Direct Plan-0.3327
Motilal Oswal Nifty 50 Index Fund(G)-Direct Plan-0.3293
HDFC Index Fund-NIFTY 50 Plan(G)-Direct Plan-0.3210
SBI Nifty Next 50 Index Fund(G)-Direct Plan-0.3204
Aditya Birla SL Nifty Smallcap 50 Index Fund(G)-Direct Plan-0.3176
Kotak Nifty 50 Index Fund(G)-Direct Plan-0.3142
LIC MF Nifty 50 Index Fund(G)-Direct Plan-0.3129
Aditya Birla SL Nifty Midcap 150 Index Fund(G)-Direct Plan-0.3050
SBI Nifty Index Fund(G)-Direct Plan-0.2882
DSP NIFTY Next 50 Index Fund(G)-Direct Plan-0.2835
Nippon India Index Fund-Nifty 50 Plan(G)-Direct Plan-0.2809
ICICI Pru Nifty 50 Index Fund(G)-Direct Plan-0.2713
HDFC Index Fund-S&P BSE Sensex(G)-Direct Plan-0.2687
Motilal Oswal Nifty Midcap 150 Index Fund(G)-Direct Plan-0.2675
DSP NIFTY 50 Index Fund(G)-Direct Plan-0.2617
UTI Nifty 50 Index Fund(IDCW)-Direct Plan-0.2613
IDBI Nifty Index Fund(G)-Direct Plan-0.2067
IDBI Nifty Junior Index Fund(G)-Direct Plan-0.2015
Tata NIFTY 50 Index Fund(G)-Direct Plan-0.1779
Axis Nifty 100 Index Fund(G)-Direct Plan-0.1701
Nippon India Index Fund-S&P BSE Sensex Plan(G)-Direct Plan-0.1664
L&T Nifty 50 Index Fund(G)-Direct Plan-0.1474
Kotak Nifty Next 50 Index Fund(G)-Direct Plan-0.1268
IDFC Nifty 50 Index Fund(G)-Direct Plan-0.1216

Among these, the following funds also qualify as funds with the largest 1Y return deviation if the base date for the trailing return calculation is changed from 8th July 2022 to 8th July 2021.

  • Motilal Oswal Nifty Smallcap 250 Index Fund(G)-Direct Plan
  • Motilal Oswal Nifty Next 50 Index Fund(G)-Direct Plan
  • Sundaram Nifty 100 Equal Weight Fund(G)-Direct Plan

What should passive fund investors do?

Avoid funds beyond the Nifty 100 universe. Stick to Sensex, Nifty and Nifty Next 50 index funds.

Why?  Because funds that track indices beyond the top 100 stocks by free-float market capitalization are (1) expensive – These index funds and ETFs are as expensive as active funds! (2) They have huge tracking errors (as defined by return differences) – Not all index funds are the same! Beyond top 100 stocks tracking errors are huge!.

Obviously, this leads to a huge loss to the investor over time. The underlying reason for this is market liquidity which can be measured via the impact cost. See Warning! Even large cap stocks are not liquid enough! Can you handle this?

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