Index funds and active funds
Funds that copy an index and funds that pick their holdings, how each works, and how each is measured.
This explains how things work. It is not advice about what to buy, sell or hold.
Two ways to run a fund
An actively managed fund has a manager and analysts who choose what to hold, trying to do better than an index. An Index fund holds the shares of an index, such as the Nifty 50, in the same proportions, and aims only to match it. Its NAV rises and falls with the index, though not by exactly the same amount.
What each costs
Choosing holdings takes research staff and trading, and those costs are in an active fund's Expense ratio (TER). An index fund needs neither, so its expense ratio is usually lower. The difference is taken every day, whatever the market does.
Tracking error
An index fund's return differs a little from its index's, because of its costs and because buying and selling cannot match the index exactly. Tracking error measures that difference: the yearly standard deviation of the gap between the fund's daily return and the index's. A smaller figure means the fund follows its index more closely.
Measuring an active fund
An active fund is measured against its Benchmark and Total Return Index, in the Total Return version that counts dividends. The return above the benchmark is its lead; alpha, as the Performance table shows it, is the return beyond what its beta (how strongly it moves with the market) accounts for. Whether a fund was ahead or behind depends on the period chosen, which is why Rolling returns compare every stretch.
Why this site uses index funds as benchmarks
The public site cannot publish NSE's index levels, which are licensed. Where an index fund tracks the same benchmark a fund declares, this site shows that index fund's NAV in its place and names it. Because the index fund carries costs and tracking error, the stand-in trails the index itself slightly.
Sources
- SEBI www.sebi.gov.in/sebi_data/faqfiles/sep-2024/1727242783639.pdf checked 02 Oct 2026
- SEBI www.sebi.gov.in/sebi_data/attachdocs/jan-2018/1515066187290.pdf checked 02 Oct 2026
- Zerodha Varsity zerodha.com/varsity/chapter/introduction-to-index-funds/ checked 02 Oct 2026
- Zerodha Varsity zerodha.com/varsity/chapter/mutual-benchmarking/ checked 02 Oct 2026