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

An investor invests Rs 3,00,000 in a Regular Plan through a distributor. The Regular Plan's Total Expense Ratio is 1.80% a year and the Direct Plan's is 0.90% a year. Assuming the gross portfolio return before expenses is identical at 12% a year, what is the approximate difference in rupees of annual returns, in favour of the Direct Plan, ignoring compounding?

The Direct Plan earns about Rs 2,700 more per year. The expense ratio gap is 0.90 percentage points (1.80% minus 0.90%), and 0.90% of Rs 3,00,000 equals Rs 2,700, since gross portfolio returns are the same in both plans.

  1. ARs 5,400
  2. BRs 2,700Correct
  3. CRs 3,600
  4. DRs 10,800

Explanation

Expense difference is 1.80% - 0.90% = 0.90%. On Rs 3,00,000 this is 3,00,000 x 0.009 = Rs 2,700. Rs 5,400 wrongly uses 1.80% as the difference, and Rs 10,800 uses 3.6%, which is not supported by the data.

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