Best Nifty index funds having the lowest tracking error and expense ratios!

When investing in index funds, two crucial characteristics to consider are tracking error and expense ratio. Keep reading to learn about the top five Nifty index funds with the lowest tracking error and expense ratio.

The Nifty 50 index appears to have begun a rebound phase. After reaching a low of 16,410 in mid-December 2021, the Nifty 50 reached a high of 17,945 in the first week of January 2022. With this, the Nifty 50 broke beyond its previous lower high of 17,640. However, it is currently facing a barrier near 18,000 levels, which if broken will send the index hunting 18,350 levels.   

As a result, the upward potential is now relatively restricted due to global cues, quarterly earnings, and rising incidence of omicron variant embracing a new set of limitations across jurisdictions. This would actually provide you with the option to purchase the index at a lesser price. And nothing beats index funds for purchasing an index. However, while choosing index funds, there are two aspects to consider: expense ratio and tracking error.  

Expense Ratio  

This parameter is critical, particularly when investing in index funds. This is due to the fact that one such component, the expense ratio, would eat away your returns. As a result, the smaller the expense ratio, the better.  

Tracking Error  

Tracking error is simply the standard deviation of an index fund's and its underlying index's daily returns. The index fund manager must verify that the weights of the portfolio's constituent stocks match those of the underlying index. As a result, there is a potential that the Net Asset Value (NAV) fluctuation of index funds will differ from that of the underlying index. Hence, you should invest in an index fund that maintains minimal tracking error on a constant basis.  

The following is a list of the top five nifty index funds with the lowest tracking error and expense ratio.