Why can a passively managed index fund still fall short of the index it tracks?

1. A market index is a measurement, so it bears no fees, no trading costs and no taxes. 2. A fund that tracks the index is a real portfolio and does bear fees and taxes. 3. Those costs come out of the fund's return but never out of the index's return. 4. So even a fund that replicates the index perfectly can finish behind it. 5. Index funds still typically charge lower management fees than actively managed funds, which is a separate point. 6. The tracking method also matters: some index funds hold every component, others only a representative sample. 7. Cash equal to liabilities and after-tax index reporting are inventions and support nothing here. _Source: US SEC Office of Investor Education and Advocacy, "Mutual Funds and ETFs: A Guide for Investors", section Index-based Funds_