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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Risk, Return and Performance of Funds

Which measure shows how much a fund's returns deviate from its benchmark's returns, and is used to judge how closely an index fund tracks its index?

Tracking error is the measure. It captures the variation in the difference between a fund's returns and its benchmark's returns, so a low tracking error shows an index fund is replicating its index closely.

  1. ATracking errorCorrect
  2. BExpense ratio
  3. CSortino ratio
  4. DPortfolio turnover ratio

Explanation

Tracking error is the standard deviation of the difference between fund and benchmark returns. A lower value means the passive fund follows its index closely. The other measures do not capture deviation from the benchmark.

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