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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Fund Distribution and Channel Management Practices

A distributor earns a trail commission of 0.60% per annum on an average AUM of Rs 5 crore from a client base held in a regular plan. The direct plan of the same scheme has a TER lower by 0.60%. If a client holds Rs 10 lakh for one year, with identical gross returns of 12% before expenses beyond that 0.60% difference, what is the approximate extra gain in rupees for the client from switching to the direct plan?

The extra gain is about Rs 6,000. The direct plan saves 0.60% in expenses, and 0.60% of Rs 10 lakh is Rs 6,000 over one year. The other figures come from misplacing the percentage or mixing in the 12% gross return.

  1. ARs 6,000Correct
  2. BRs 60,000
  3. CRs 600
  4. DRs 7,200

Explanation

The difference in TER is 0.60% of Rs 10,00,000, which is Rs 6,000 for the year. Rs 60,000 uses 6% by mistake, Rs 600 shifts the decimal wrongly, and Rs 7,200 applies 0.60% to the grown value incorrectly as 12% of 60,000.

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