Which Nifty Next 50 index fund has the lowest tracking error?

Published: June 7, 2020 at 11:02 am

A look at the six available Nifty Next 50 (NN50) index funds to determine which has the lowest tracking error.

Only two NN50 index funds have a history greater than seven years – the ones from  ICICI and IDBI. The next oldest fund is from UTI and is yet to complete two years at the time of writing! DSP launched its NN50 fund only in Feb 2019. Motilal came up with its fund in Dec 2019 and  L&T launched its fund only in April 2020.

The oldest NN50 passive fund is Nippon India ETF Junior BeES which started in Feb 2003 (when NN50 was known as Nifty Jr). Visually, this is the only ETF that has minimal price-NAV fluctuations and a decent AUM of Rs. 1000 plus crores.

Computing ETF tracking error analysis requires price data and not NAV (as conveniently used by AMCs and rating portals). See: ICICI Nifty Next 50 Index Fund vs Reliance ETF Junior BeEs

Other ETFs have also been reviewed before: What is the best way to invest in Nifty Next 50 Index? For typical retail investors, an index fund is better than an ETF as the burden of selling it to fellow unitholders is removed.


Let us start with the last one year returns (wrt June 5th 2020)

Scheme Name1 Year
NIFTY NEXT 50 – TRI-8.24
ICICI Pru Nifty Next 50 Index Fund(G)-Direct Plan-9.06
IDBI Nifty Junior Index Fund(G)-Direct Plan-8.58
DSP NIFTY Next 50 Index Fund(G)-Direct Plan-9.25
UTI Nifty Next 50 Index Fund(G)-Direct Plan-8.29

A simple way to measure index-tracking efficiently is to look at the return differences.

Tracking error = index (div incl) return minus index fund return

This must always be positive and as small as possible.

Scheme Name1-year tracking error
ICICI Pru Nifty Next 50 Index Fund(G)-Direct Plan0.82
IDBI Nifty Junior Index Fund(G)-Direct Plan0.33
DSP NIFTY Next 50 Index Fund(G)-Direct Plan1.00
UTI Nifty Next 50 Index Fund(G)-Direct Plan0.05

The clear loser is the DSP fund. It may be young but that is just too much difference. Sadly the ICICI fund is a close second for this duration. It would be premature to declare the UTI fund as the winner due to its age but that is good going!

The tracking error for durations below the last one year is tabulated below. Good going by UTI. Cannot say the same for funds from DSP and ICIC.

Scheme Name1 Month3 Months6 Months9 Months
ICICI Pru Nifty Next 50 Index Fund(G)-Direct Plan0.0260.4370.5280.704
IDBI Nifty Junior Index Fund(G)-Direct Plan0.213-0.0130.0860.298
DSP NIFTY Next 50 Index Fund(G)-Direct Plan0.1200.7020.6910.726
UTI Nifty Next 50 Index Fund(G)-Direct Plan-0.0620.0160.0520.071

These are the tracking errors for the only two older funds.

Scheme NameICICI Pru Nifty Next 50 Index Fund(G)-Direct PlanIDBI Nifty Junior Index Fund(G)-Direct Plan
2 Years0.700.26
3 Years0.750.67
4 Years0.950.80
5 Years0.870.87
6 Years1.141.32
7 Years1.802.16

Beyond two years, there is much of a difference between the funds. The NN50 fund from IDBI has performed reasonably over both short and long durations. ICICI’s fund has not done well over the last two years in tracking NN50. A closer watch by its investors is necessary.

It is quite possible that the scenario could be different if we consider rolling tracking errors. We shall do this in a future article.

It would be premature to declare the UTI fund as the winner as it is too young and its investors should not assume its tracking efficiency would remain the same with time.

AUM in and outflows and market volatility and impact costs play a big role in maintaining a low tracking error. See Warning! Even large cap stocks are not liquid enough! Can you handle this?

Do share if you found this useful

We now publish both equity fund and debt fund (+ hybrid fund) screeners each month!
Use our Robo-advisory Excel Template for a start-to-finish financial plan! Now with a new demo video!  More than 415 investors and advisors use this!
Unlock the secrets of successful financial advisors and entrepreneurs with our new course!
My new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision making. We have all 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, if we had to groom one ability in our children that is key not only to money management and investing but for any aspect of life, what would it be? 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 parent’s plan for it and teach 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 for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Did you know? We have more than 1000+ videos on YouTube to explore! Join our YouTube Community!

Join our courses in exclusive Facebook Groups!

  • 550+ members are now part of our new course: How to get people to pay for your skills! (watch 1st lecture for free). 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 how to achieve by showcasing your skills and building a community that trusts you and pays you!
  • Goal-based portfolio management! Join 2220+ members and get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment of Rs. 3000 only. No recurring fees! Life-long access to videos (10+ hours content)  in an exclusive Facebook Group! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.

Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements, write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only 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, seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
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 analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, 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 199 (instant download)
Free android apps