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

An investor invests Rs 1,00,000 through a regular plan whose total expense ratio is 1.80% per annum and the direct plan of the same scheme has a TER of 0.90%. Assuming the gross portfolio return before expenses is 12% in both and the TER is deducted from it, what is the approximate difference in one-year end value (ignoring compounding effects and taxes)?

The difference is about Rs 900. Direct plan net return is 11.10% and regular plan net return is 10.20%, so the gap is 0.90% of Rs 1,00,000. The difference equals only the extra expense ratio, which is the distribution cost built into the regular plan.

  1. ARs 900Correct
  2. BRs 1,800
  3. CRs 2,700
  4. DRs 90

Explanation

Regular plan net return = 12% - 1.80% = 10.20%. Direct plan net return = 12% - 0.90% = 11.10%. The difference is 0.90% of Rs 1,00,000 = Rs 900. Rs 1,800 would wrongly use the full regular TER as the difference.

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