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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Net Asset Value, Total Expense Ratio and Pricing of Units

A scheme has average weekly net assets of ₹800 crore during a year. It incurred total expenses of ₹14 crore, of which ₹2 crore were brokerage and transaction costs on which the regulations allow a separate charge to be added beyond the base expense limit (treated here as part of expenses). Considering the total expenses reported, what is the Total Expense Ratio (TER)?

The TER is 1.75%. It is the total expenses charged to the scheme, ₹14 crore, divided by average weekly net assets of ₹800 crore. Removing the ₹2 crore of brokerage would understate the ratio, since it is part of the stated expenses.

  1. A1.25%
  2. B1.50%
  3. C1.75%Correct
  4. D1.00%

Explanation

TER is total expenses charged to the scheme divided by average weekly net assets, so 14 / 800 = 1.75%. Excluding the ₹2 crore would give 12/800 = 1.5%, which is wrong because the question states the ₹14 crore is the total expenses charged. Check: 800 x 1.75% = 14.

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