Abstract:
Though a difference exists in the way Exchange Traded Funds (ETFs) and index mutual funds are formed, both the funds follow the passive style of investing, wherein the fund manager tries to mimic the returns of the chosen market index. Using a sample of 16 index mutual funds and 14 ETFs, from inception of the funds to March 31, 2017, this paper investigates the ability of the index mutual funds and ETFs in India to track their chosen market index. The study reveals that index mutual funds exhibit significantly higher tracking error than its counterpart. The results of regression analysis further reveal that ETF fund managers have been able to construct a portfolio that is more commensurate with the chosen index than its counterpart.
