Tracking error explained: What every passive investor should know
As Mahavir Kaswa, head of passive research, Axis Mutual Fund, explained, “Tracking error represents the annualized standard deviation of daily returns between the underlying index and the Scheme. It highlights the day-to-day variability of returns difference between portfolio and underlying benchmark, revealing whether a fund manager suffered subtle execution slips or cash drag over the period of observation. For both metrics, lower is always better, even if unexpected positive differences signal unwanted strategy deviation.”
