What are the parameters to choose the best index fund?

What are the parameters to choose the best index fund?
- Shashank

It is pretty straightforward. Look at the expense and its ability to replicate the index. For this, you will find a variable on Value Research, fund factsheets, and other places called the tracking error. The tracking error tells how closely the fund replicates the index's performance. For instance, if the index goes up by 2 per cent, the fund may provide 2.01 per cent or 1.99 per cent returns. There is always a variance.

But most important is the expense because if there are two index funds where one is charging 10 basis points, and the other is charging 25 basis points, you will simply make more money with the fund charging less.

This article was originally published on January 10, 2022.