Lesson 33 of 53 · Index funds vs active funds · 3 min read · Reviewed 29 Oct 2026
An index fund holds the shares of an index in the same weights, so it earns the index return minus costs; SEBI caps its base expense ratio at 0.90%. An active fund’s manager picks shares to beat its benchmark and charges more for it. The question for an active fund is whether it has beaten its benchmark index after costs.
An index fund copies an index, such as the Nifty 50, so its return is the index’s minus costs.
SEBI caps an index fund’s base expense ratio at 0.90% a year. Brokerage and taxes come on top.
Tracking difference shows the return given up against the index. Fund houses publish it monthly.
Key idea: An active fund earns its higher fee only if it beats the index it is measured against after costs.
Try the short quiz on this page to check what stuck.
Its tracking error is capped at 2%.
On the fund house’s and AMFI’s websites, updated daily.
It follows an index too, but you buy and sell it on the exchange through a demat account.
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