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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Selection

Two equity funds have the same category and similar portfolios. Fund A has a Total Expense Ratio of 1.00% and Fund B 2.00%, both gross returns being 12% before expenses. Assuming returns are net of TER as a simple deduction, what is the approximate net return difference between them, in favour of Fund A?

Fund A earns about 1 percentage point more than Fund B. After deducting TER, Fund A returns 11% and Fund B returns 10% from the same 12% gross return, so the cost gap of 1.00% passes directly to the investor.

  1. A0.50%
  2. B1.00%Correct
  3. C2.00%
  4. D12.00%

Explanation

Net return A = 12% - 1% = 11%; B = 12% - 2% = 10%. The difference is 1 percentage point. 2.00% would be wrongly using B's TER alone as the gap.

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