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    ETFs And Bonds

    What is tracking error and tracking difference?

    Tracking difference: It is the difference between the 1-year return of an ETF as compared with that of its underlying asset/index. Let’s say the NIFTY gave an annual return of 10% while a NIFTY ETF gave a return of 9.8%; this difference of 0.2% is called the tracking difference.

    Tracking error: It is the rate at which the difference between the rate of return of an ETF and the rate of return of the underlying asset/index changes in one year. In other words, this shows how well the ETF reflects the performance of the underlying asset/index. This is measured as the standard deviation percentage difference.

    Let’s say the NIFTY gave an annual return of 10% while a NIFTY ETF gave a return of 9.8%. The tracking difference in this case; whereas the tracking error quantifies how often this difference fluctuates around that 0.2% mark.

    There can be the following possible reasons for tracking error and tracking difference:

    1. Expenses: The management fee, brokerage and transaction costs (including statutory charges) directly reduce the returns

    2. Operations: Buying/selling slippages, bid-ask spreads or rebalancing may cause divergence from index return.

    3. Corporate actions and index changes: Corporate actions such as splits, mergers, demergers and right issues require adjustment that may not be instantaneous and hence may lead to temporary mismatches.

    What is the difference between Impact cost and Expense ratio? Where is the gold stored for Gold ETFs? Can I get physical gold by redeeming Gold ETF units? What is Smart Beta or Factor ETFs? Why can’t I invest in international or global ETFs? Can I pledge my ETF units to get a margin for trading? Can I sell ETFs using eATM? How are Debt ETFs taxed? What are Authorized Participants (APs)? How are ETFs different from Stocks and Mutual Funds? What is an ETF unit? What are Equity ETFs? What are Index ETFs? What are Gold and Silver ETFs? What is impact cost in ETFs? How to reduce Impact Cost? What is Indicative Net Asset Value (iNAV)? What is Net Asset Value (NAV)? What are creation units? What is an Exchange-Traded Fund (ETF)? How are gold investments taxed at the time of purchase and sale across different forms? Do I need a Demat account to invest in ETFs? Can I setup a SIP in ETFs? What should I check before investing in ETFs?
    What is the share as margin haircut percent on the Sovereign Gold Bonds (SGBs)? What are the shares as margin haircut percent and maximum quantity pledge limit for the ETFs? What is difference between Sovereign Gold Bonds and Gold ETFs How many Sovereign Gold bonds are their with percentage SAM haircut ? What are Sovereign Gold Bonds (SGBs)? What is the tenure of SGBs? What is the interest rate on SGBs? Can SGBs be used as collateral for loans?