Passive investing: Why do index funds tracking the same benchmark have different NAVs?

What is common between Axis Nifty 50 Index Fund and HDFC Nifty 50 Index Fund? It's easy to answer, right? Both are passive index funds tracking the Nifty 50 TRI. But the Net Asset Value (NAV) of HDFC Nifty 50 Index Fund is 241 while the NAV of the Axis Nifty 50 Index Fund is 14.9 as of May 16, 2025. Ever wondered why this happens? Or why do mutual funds tracking the same index have different NAVs? This article aims to explain it to you.

Index funds are typically benchmarked against an index. They invest in stocks that are represented in the index. Thus, the index also serves as a reference point to measure or compare the fund's performance. If the fund performs better than the index, it is said to be generating alpha. If it does not, then it is said to be underperforming relative to the index.

When the fund's value grows over time, it is represented through its NAV. Thus, a fund that has existed for a long time is likely to have a higher NAV even though it is tracking the same index as the fund with a lower NAV.

However, timing alone doesn't describe why a fund's NAV is higher. It is possible that a fund has existed for a long time in the market but has consistently underperformed. Hence, its NAV is low compared to a fund that may be new in the market.

There could be some other reasons also because of which a fund's NAV is low compared to other funds tracking the same index:

For instance, the tracking error, or in other words, a fund manager's inability to perfectly replicate the index or poor rebalancing strategies, may also affect the NAV growth.

What does a lower or higher NAV say about a fund's quality?

The lower or higher NAV of a fund doesn't say much about its quality. While comparing funds, one should check the percentage change in returns, as all funds tracking the same index should ideally perform in proportion to the index's performance. There are also various other factors on which a fund can be compared with its peers. We explained one such factor in a recent article.