The fund manager allocates investments in the stocks comprised in the benchmark index. The proportion of each stock matches the weightage assigned in the corresponding index. The fund manager periodically adjusts or rebalances the portfolio based on changes in the composition of the benchmark index.

Index funds that track broad-market indices like Nifty 50 and BSE SENSEX offer diversification as they include companies from various sectors, such as financial services, FMCG, IT, automobile, etc. This diversification helps to balance out the performance of individual stocks, as gains in some sectors can compensate for losses in other sectors.

Index funds are designed to replicate the benchmark index. Therefore, emotions or personal biases do not play any role in the stock selection.

• Investors seeking to generate returns that align with the underlying Index returns.
• New investors with limited knowledge of the market.
• Investors interested in gaining exposure to Equity/Debt/Commodity with a disciplined investment approach.

Tracking error in simple terms means deviation of the difference in daily returns between the underlying index or goods and the NAV of the Fund. It indicates how closely the funds follow their indices. The lower the tracking error, the better the alignment.