Choose the index fund that has trailed its index by the least over three to five years (its tracking difference), then check that its expense ratio is low, its tracking error is tight and it isn't tiny. For a Nifty 50 index fund in September 2026, a good result is a five-year tracking difference of about 0.2–0.25% a year, an expense ratio under 0.25% and a tracking error of 0.05% or less.
This guide shows how to run those four checks on any index fund, using AMFI data for all 26 Nifty 50 index funds as the worked example. Want the ranked list? See the best Nifty 50 index funds in 2026. This page is about the method.
Why do index funds on the same index give different returns?
Every Nifty 50 index fund buys the same 50 stocks in the same weights, so their returns should be identical. They aren't, because each fund loses a little along the way: its expense ratio, trading costs when the index changes, and cash held for redemptions. Over the five years to 30 September 2026, the Nifty 50 Total Return Index grew 6.38% a year. The Direct Growth plans of Nifty 50 index funds grew between 5.50% and 6.20% a year over the same period.
That 0.7-point spread between best and worst is the whole game. The four checks below tell you which end of it a fund is likely to sit at.
Check 1: Tracking difference, the number that matters most
Tracking difference is the index's return minus the fund's return over a period, expressed per year. It is the cost you actually paid, all-in. AMFI doesn't publish it, but you can work it out from two numbers: the fund's NAV growth and the index's Total Return Index (TRI) growth over the same dates. Use the TRI, not the price index, because the fund receives dividends and the price index ignores them.
For the 15 Nifty 50 index funds with five years of history, the five-year tracking difference ranged from 0.18% to 0.88% a year, with a median of 0.27%. Anything at or below about 0.25% is in the better half.
Two cautions. Tracking difference looks backwards, so it reflects the fees a fund charged in past years, which may differ from today's. And it needs at least three years of data to mean much; a one-year number is mostly noise.
Check 2: Expense ratio, the part you can see in advance
The expense ratio (TER) is the yearly fee taken from the fund's assets. It is the biggest single driver of tracking difference, and unlike tracking difference it tells you what you will pay from now on. Since April 2026, SEBI's rules split it into a base expense ratio plus statutory levies such as GST. Compare the total figure, because that is what comes out of your returns.
Direct-plan TERs for Nifty 50 index funds ran from 0.10% to 0.86% in late September 2026 (AMFI). The median was 0.24%. Regular plans of the same funds cost a median 0.31 percentage points more, for no difference in what the fund holds, so buy the Direct plan unless you are paying a distributor for advice you actually use.
The data shows how closely fee and tracking difference move together. Taurus charges 0.86% and trailed the index by 0.88% a year over five years. LIC MF charges 0.56% and trailed by 0.38%. Most of the low-fee established funds trailed by only 0.18–0.23%.
Check 3: Tracking error, how closely it follows day to day
Tracking error is the standard deviation of the gap between the fund's daily return and the index's, annualised over a year. It measures wobble, not cost: a fund can track the index tightly and still trail it every year by its fee. SEBI requires index funds to disclose it, and AMFI publishes it for every scheme.
On AMFI's 25 September 2026 data, Nifty 50 index funds' Direct plans had one-year tracking errors from 0.02% to 0.42%, with a median of 0.06%. Under 0.05% is very good for this index. A number well above the category median is worth a look at the fund's factsheet, because it usually means cash drag or slow rebalancing, often in a new or very small fund.
What counts as good depends on the index. Smaller, less liquid stocks cost more to trade, so fees and tracking error run higher:
| Index tracked | Index funds | Median Direct TER | Median tracking error | Highest tracking error |
|---|---|---|---|---|
| Nifty 50 | 26 | 0.24% | 0.06% | 0.42% |
| BSE Sensex | 12 | 0.26% | 0.10% | 0.16% |
| Nifty Next 50 | 19 | 0.37% | 0.10% | 0.44% |
| Nifty Midcap 150 | 15 | 0.38% | 0.09% | 0.15% |
| Nifty Smallcap 250 | 11 | 0.39% | 0.09% | 0.24% |
Index funds only, not ETFs. TER is the latest AMFI daily filing (22–28 September 2026); tracking error is AMFI's one-year figure as of 25 September 2026, Direct plans. Fund counts differ slightly between the two AMFI files.
Notice that small-cap index funds track their index far better than older rules of thumb suggest: the median is under 0.1%, and no Smallcap 250 index fund was above 0.24%.
Check 4: Fund size (AUM)
Size matters less for an index fund than for an active one, but very small funds tend to carry higher costs, because fixed expenses and statutory levies weigh more on a small asset base. Nifty 50 index funds held about ₹1 lakh crore between them in April–June 2026 (AMFI average AUM), and the four largest held about 80% of it.
I wouldn't rule out a fund for being mid-sized. Several funds with ₹1,000–4,000 crore track as well as the giants. I would be wary of funds under about ₹100 crore. The highest TER in the category (Taurus, 0.86%) and the highest tracking error (Bajaj Finserv, 0.42%) both belong to funds of that size, and the newest ones don't have enough history to judge their tracking difference yet.
All four checks on every Nifty 50 index fund with 3+ years of history
| Fund (Direct Growth) | TER | Tracking error | Avg AUM (₹ Cr) | 3Y tracking difference | 5Y tracking difference |
|---|---|---|---|---|---|
| UTI Nifty 50 Index Fund | 0.25% | 0.02% | 27,826 | 0.23% | 0.24% |
| HDFC Nifty 50 Index Fund | 0.29% | 0.02% | 23,218 | 0.29% | 0.28% |
| ICICI Prudential Nifty 50 Index Fund | 0.24% | 0.03% | 16,449 | 0.29% | 0.27% |
| SBI Nifty Index Fund | 0.23% | 0.02% | 13,288 | 0.28% | 0.27% |
| Navi Nifty 50 Index Fund | 0.10% | 0.02% | 3,926 | 0.18% | 0.20% |
| Nippon India Index Fund – Nifty 50 Plan | 0.13% | 0.03% | 3,656 | 0.20% | 0.23% |
| Bandhan Nifty 50 Index Fund | 0.14% | 0.03% | 2,633 | 0.22% | 0.18% |
| Tata Nifty 50 Index Fund | 0.26% | 0.10% | 1,626 | 0.33% | 0.28% |
| Aditya Birla Sun Life Nifty 50 Index Fund | 0.23% | 0.07% | 1,398 | 0.25% | 0.29% |
| Kotak Nifty 50 Index Fund | 0.12% | 0.06% | 1,109 | 0.29% | 0.28% |
| DSP Nifty 50 Index Fund | 0.22% | 0.05% | 1,074 | 0.21% | 0.23% |
| Axis Nifty 50 Index Fund | 0.16% | 0.04% | 968 | 0.20% | n/a |
| Motilal Oswal Nifty 50 Index Fund | 0.19% | 0.04% | 868 | 0.19% | 0.20% |
| Franklin India NSE Nifty 50 Index Fund | 0.30% | 0.12% | 722 | 0.25% | 0.29% |
| HSBC Nifty 50 Index Fund | 0.22% | 0.10% | 377 | 0.25% | n/a |
| LIC MF Nifty 50 Index Fund | 0.56% | 0.10% | 358 | 0.42% | 0.38% |
| Edelweiss Nifty 50 Index Fund | 0.14% | 0.06% | 286 | 0.22% | n/a |
| Taurus Nifty 50 Index Fund | 0.86% | 0.08% | 6 | 0.99% | 0.88% |
Sources and dates: TER is the total Direct-plan TER in AMFI's latest daily filing, 22–28 September 2026. Tracking error is AMFI's one-year figure for the Direct plan, 25 September 2026 (Franklin: 28 September). Average AUM is AMFI's April–June 2026 quarterly average, all plans combined. Tracking difference is FinPlann's calculation: Nifty 50 TRI annualised return minus the Direct Growth NAV's annualised return, to 30 September 2026, using AMFI NAVs and NSE Indices' TRI. Eight newer funds with under three years of history are left out. This is a comparison, not a recommendation.
What the screen shows
- No fund leads on all four checks. Navi, Bandhan, Motilal Oswal, Axis and Nippon India have the smallest tracking differences, at about 0.18–0.23% a year. The four largest funds (UTI, HDFC, ICICI Prudential, SBI) have the tightest tracking error and by far the most assets, but have trailed the index by roughly 0.05–0.1 points a year more.
- A low fee today isn't the same as a low tracking difference. Kotak's 0.12% TER is among the lowest, yet its three- and five-year tracking differences are in line with funds charging twice as much. Past fees, or other costs, show up in the record. If a fund's fee is much lower than its tracking difference suggests, check on the AMC's site when it was cut.
- High fees always show. The two established funds charging over 0.5% a year, LIC MF and Taurus, have the worst tracking differences in the table.
- The differences among the good funds are small. Between the best and the median established fund, the gap is under 0.1 percentage point a year. Don't switch funds and pay capital gains tax to capture it.
How much does a 0.25% difference really cost?
Less than many articles claim, but enough to care about. Here is an illustrative ₹10,000 monthly SIP for 20 years (₹24 lakh invested), with returns compounded monthly:
| Yearly gap in returns | If the better fund earns 12% | If the better fund earns 10% |
|---|---|---|
| 0.10% (best vs median fund) | about ₹1.1 lakh less | about ₹0.85 lakh less |
| 0.25% | about ₹2.7 lakh less | about ₹2.1 lakh less |
| 0.70% (best vs worst fund) | about ₹7.4 lakh less | n/a |
At 12%, the better fund ends at about ₹92 lakh, so a 0.25% gap costs about 3% of the final corpus. The figure of ₹15–25 lakh that circulates for a 0.25% gap would need a gap of about 1.5% a year, which no reasonable Nifty 50 index fund has. The returns here are assumptions, not forecasts. Try your own numbers, including ETF costs, in the ETF vs index fund calculator.
Should you use an ETF instead?
For the same index, the largest Nifty 50 ETFs charge about 0.03–0.05% a year (AMFI, September 2026), well below any index fund. But you need a demat account, you pay brokerage and the bid-ask spread, and you can't set up an automatic SIP in the same way. For small monthly amounts an index fund is usually simpler; for large lump sums an ETF's lower fee can win. Our guide to ETFs vs mutual funds vs index funds covers the trade-offs, and the ETF vs index fund calculator shows the break-even.
Mistakes to avoid
- Picking on last year's return. Over one year, every established Nifty 50 index fund returned between −7.1% and −7.9% to September 2026. The ranking reshuffles each year; tracking difference over several years is the stable signal.
- Judging a fund on its expense ratio alone. It is the best forward-looking number, but confirm it against the fund's tracking record.
- Owning three funds on the same index. They hold identical stocks. One per index is enough.
- Buying a fund too new to judge. A fund with a few months of NAVs has no meaningful tracking difference yet.
- Ignoring which index it tracks. A Nifty 50 fund, an equal-weight Nifty 50 fund and a Nifty 50 Value 20 fund are very different products. Read the scheme name and the index factsheet.
A five-minute checklist
- Pick the index first (Nifty 50, Next 50, Midcap 150 and so on). The fund choice comes second.
- List every index fund on that index and keep the Direct Growth plans.
- Drop funds with under three years of history or a TER well above the category median.
- Compare three- and five-year tracking difference against the index TRI; prefer the lowest.
- Check AMFI's tracking error is near or below the category median, and that the fund isn't tiny.
FinPlann's ETF vs index fund calculator is a good next step once you have a shortlist.
