---
title: "Tracking Error Calculator: Index Funds, ETFs | RupeeCase"
description: "Tracking error calculator: paste a fund’s and its index’s monthly returns to get the tracking error, the tracking difference and the information ratio."
source_url: "https://www.rupeecase.com/learn/tools/tracking-error-calculator"
---

Tracking error, annualised**0.10%**
Tracking difference, a year**−1.19%**
Information ratio**-11.00**
Months compared**12**

* Fund
* Index

Tracking error = standard deviation of the monthly differences x the square root of 12.
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  01How it works

## In plain words.
Tracking error is the volatility of the monthly differences between the fund and the index, annualised. Tracking difference is simply how much less (or more) the fund returned a year. An index fund wants both close to zero.

    The formula

`d = fund return - index return, each month``Tracking error = stdev(d) x sqrt(12)``Tracking difference = fund compound return - index compound return``Information ratio = mean(d) x 12 / tracking error`

  02Worked example

## The default numbers, by hand.
The 12 month sample: the fund trails by about 0.1 point a month with small wobbles, a tracking difference of about 1.2% a year and a tracking error of 0.10%.

| Input | Value |
| --- | --- |
| Fund monthly returns, % (sample) | 12 values (the default sample) |
| Index monthly returns, % (sample) | 12 values (the default sample) |

| Result | Value |
| --- | --- |
| Tracking error, annualised | 0.10% |
| Tracking difference, a year | −1.19% |
| Information ratio | -11.00 |
| Months compared | 12 |

  03Key concepts

## What to know before you use it.

### Two different costs
Tracking difference is mostly the TER and cash drag; it shows up as a lower return. Tracking error is the noise around the index; it shows up as uncertainty.

### Where to find the figures
SEBI requires index funds and ETFs to disclose tracking error, and many fund houses publish tracking difference on their websites.

### Good to know

* Use total return index (TRI) figures, which include dividends, not the price index.
* Twelve months or more give a steadier figure.

  04Assumptions

## What the calculator assumes.

* Monthly returns in percent, aligned month by month.

  05Questions

## Asked about the Tracking error.
What is tracking error?The annualised standard deviation of the difference between a fund’s return and its index’s return. Lower means the fund follows the index more closely.

Tracking error or tracking difference?Tracking difference is the average shortfall a year; tracking error is how much that shortfall varies. Both matter for an index fund.

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06Keep going

## Learn the idea, see it applied.

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  Education only, not investment advice. RupeeCase is a technology platform operated by QC Alpha Technologies Pvt Ltd; it is not a fund, a PMS or a SEBI registered investment adviser. Model returns are back tested and not a promise of future returns. Figures carry the date they were checked.