NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Performance
In the context of mutual fund scheme performance, what is 'tracking error' for an index fund?
Tracking error is the standard deviation of the difference between an index fund's returns and the returns of its benchmark index. A lower tracking error indicates the fund follows the index more closely.
- AThe standard deviation of the difference between the fund's returns and the index returnsCorrect
- BThe total expense ratio charged by the fund
- CThe difference between the NAV and the market price of the units
- DThe fund's return above the risk-free rate
Explanation
Tracking error is the variability of the difference between fund returns and benchmark returns; lower means the fund replicates the index more closely. Expense ratio is a cost. NAV versus market price is premium or discount. Return above the risk-free rate is excess return.
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