Daxesh Kothari on tracking error, the gap that decides your returns, and the test for when switching is worth the tax and the exit load
Passive investing is supposed to mean picking one low-cost index fund and leaving it alone. So why do so many investors still feel the urge to switch? In this episode of The Index Investor, we speak with Daxesh Kothari, managing director and chief executive of Ashutosh Financial Services, about when switching a passive fund is genuinely worth it and when it is just a costly reflex.
Kothari explains why tracking error, not the headline expense ratio, is the real cost of owning a passive fund, and why a cheaper fund is not automatically a better one. He sets out how long you should watch a tracking gap before acting, and why one year is not enough, how to weigh a possible saving against exit loads and capital gains tax, and why constantly chasing the latest sectoral or thematic index fund can turn a passive portfolio into an active one.