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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 an equity scheme through a distributor. The scheme's regular plan has a TER 1% higher than the direct plan. Assuming identical gross returns, what is the approximate additional annual cost borne by the investor in the regular plan, which funds the distributor's trail commission?

The additional cost is about Rs 5,000 a year, since 1% of Rs 5,00,000 equals Rs 5,000. This higher expense ratio of the regular plan over the direct plan largely pays the distributor's trail commission and is borne by the investor through lower NAV.

  1. ARs 500
  2. BRs 5,000Correct
  3. CRs 50,000
  4. DRs 1,000

Explanation

Extra cost = 1% of Rs 5,00,000 = Rs 5,000 per year. Rs 500 uses 0.1%, and Rs 50,000 uses 10%, so both are wrong. Rs 1,000 is not related to 1%.

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