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

An investor invests Rs 5,00,000 in a regular plan of a scheme whose TER is 2.0% and the direct plan of the same scheme has a TER of 1.2%. Assuming the gross portfolio return before expenses is 10% for the year and TER is deducted from it (simple subtraction), by how much more, in rupees, does the investor earn in the direct plan than in the regular plan over one year?

The investor earns Rs 4,000 more in the direct plan. The TER gap is 2.0% minus 1.2%, which is 0.8%, and 0.8% of Rs 5,00,000 equals Rs 4,000. Direct plans have no distributor commission built into their expenses.

  1. ARs 2,000
  2. BRs 4,000Correct
  3. CRs 6,000
  4. DRs 40,000

Explanation

Difference in TER = 2.0% - 1.2% = 0.8%. Rs 5,00,000 x 0.8% = Rs 4,000. Regular net return is 8% (Rs 40,000) and direct is 8.8% (Rs 44,000); Rs 40,000 is only the regular plan's return, not the difference.

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