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

An investor invests through a distributor under the Regular Plan of a scheme. Which statement about the Direct Plan versus the Regular Plan is correct?

The Direct Plan has a lower expense ratio because it carries no distributor commission. Both plans hold the same portfolio, but the Regular Plan bears the commission cost, so its expense ratio is higher and its NAV is lower over time than the Direct Plan.

  1. AThe Direct Plan has a lower expense ratio because it carries no distribution commissionCorrect
  2. BThe Direct Plan has a higher expense ratio because the AMC services investors directly
  3. CBoth plans have separate portfolios of securities
  4. DThe Regular Plan NAV is always lower because it has no commission built in

Explanation

Both plans invest in the same portfolio. The Regular Plan's expenses include distributor commission, so its expense ratio is higher and its NAV is lower over time. The Direct Plan has no distribution commission, hence a lower expense ratio and higher NAV.

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