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

A distributor has a client who invests Rs 6,00,000 in the Regular Plan of an equity scheme with a total expense ratio of 2.00% p.a., while the Direct Plan of the same scheme has a total expense ratio of 1.20% p.a. Assuming the gross portfolio return is the same at 12% p.a. before expenses and the amount is held for one year, what is the approximate difference in rupee value at year end between the two plans, using simple (net return = gross less expense ratio) calculation?

The difference is Rs 4,800. The Regular Plan nets 10.00% and the Direct Plan nets 10.80%, a gap of 0.80 percentage points. Applied to Rs 6,00,000, this gives Rs 4,800 extra value at year end in the Direct Plan.

  1. ARs 4,800Correct
  2. BRs 7,200
  3. CRs 12,000
  4. DRs 4,000

Explanation

Regular net return = 12% - 2.00% = 10.00%; Direct net = 12% - 1.20% = 10.80%. Difference = 0.80% of Rs 6,00,000 = Rs 4,800. Rs 7,200 would be 1.2% (the Direct expense ratio alone), and Rs 12,000 would be 2%.

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