Tracking Error
Measures how closely the fund replicates the performance of its underlying index.
Tracking Error
Measures how closely the fund replicates the performance of its underlying index.
Fund
Tracking Error Formula
Step 1 - Obtain the NAV values and the TR Index values for each day of the total time period required
Step 2 - Calculate the percentage change in the NAV and the TR Index for each day over its previous day
Percentage change in the NAV =
NAV as on day (t) - NAV as on day (t-1)
NAV as on day (t)
Step 3 : Calculate the difference between the percentage change in the NAV and the percentage change in the TR index for each day
Step 4 : Calculate the Standard Deviation of the difference obtained from day (1) to day (n) in step 3
Step 5 : Calculate the annualised tracking error as per the formula given below :
Annualised Tracking Error = Standard Deviation obtained (Step 4 * sqrt (250))