Exchange traded fund-A study of tracking error

ETFs is a form of mutual fund scheme that is listed or traded in stock exchange as stocks and have high level of flexibility but one of the major drawback is the magnitude of tracking error. This study is an attempt to find out the magnitude of tracking error of ETFs in Indian context. This is quite a new concept in India as the Indian financial market is growing and the investors get better options for investing their funds. But it is also required that the investors must be aware of where they are investing, so with the help of this study they will be able to compare the benefits against other financial instruments. This showed that the magnitude of tracking errors of Indian ETFs are quite high. Out of six funds studied three showed the presence of tracking error. Further the comparison of gold ETFs and index ETFs, the results revealed that both are providing similar benefits.