Tracking error in Motilal Oswal Nasdaq 100 ETF

[pool_93]

The tracking error in Motilal Oswal Nasdaq 100 ETF is 55.04%. Isn’t this too high or am I missing something here? TIA

[Dorkstar1]

Didn’t understand your question bro, can you throw some more light?

[pool_93]

I’m considering investing in an ETF tracking the S&P 500 or Nasdaq, so came across Motilal Oswal Nasdaq 100 ETF. Since tracking error between the ETF and the benchmark should as low as possible, 55.04% tracking error seems too high. Attaching a screenshot as well for more context, hope this gives clarity.

[Prayag]

Might be a typo of some kind from @Tickertape’s end. As per a tweet by @pratikoswal a few months back, the tracking error for N100 ETF has been 0.3% for the last 3 years -

Pratik Oswal (pratikoswal88)

[pool_93]

Thanks @Prayag. @smallcase can you please check this, can be misleading for investors.

[pool_93]

How is the taxation like for these funds/ETFs, will there be a tax liability in the US as well?

[Prayag]

There is a reply on a different thread which explains this -

@nithin

Gold ETFs and International ETFs will be taxed similar to debt funds. So, it will be similar to the information you have provided in the screenshot as the current laws of taxation

STCG (within 3 years ) - will be added to your taxable income and taxed as per the slab.
LTCG (more than 3 years) - will be taxed at 20% with indexation.

[ankur0101]

Hello @Prayag,
Can you please help us with tracking error topic?

[Prayag]

I asked about this on Twitter and @pratikoswal (who heads passive funds (ETFs + Index funds) business at Motilal Oswal Asset Management Company) also confirmed that this is an error at @Tickertape’s side -

Pratik Oswal (pratikoswal88)

[Sagar_S]

The tracking error is due to expenses that get deducted. So its fair.

[Augustine_Charly]

The fund wasn’t tracking the index well until Nov 2018. Thereafter it got back to a good track.

The following graph shows performance of the ETF with respect to it’s index (accounting for currency conversion). For an ideal tracking fund, this graph will look flat. (Equation used to plot the graph can be seen in the top left of the image)

If the above graph doesn’t make sense, see a more easy to understand chart below. It compares the fund vs its index (converted to INR)

So, the tracking error value might be based on past data and that might be the cause for the tracking error value you saw. The graphs above make me feel the issue is fixed by now.

[simhan]

So from above graph what is the max tracking error for the past 1 yr.

From the below blog post it looks very bad. What is the reason?

Tracking errors of MO S&P 500 Index fund, MO Nasdaq 100 ETF and FoF

“The NASDAQ 100 (N100) Total Return in INR moved up by 43.2% for the same period. MO-N100ETF NAV moved up by 37.2% and ETF price by 37.1%. This is a bigger deviation! MO-N100FOF moved up by 35.9%.”