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

Two large cap funds have the same portfolio and gross returns of 12% a year. Fund A's Direct Plan has a total expense ratio of 0.80% and Fund B's Direct Plan has 1.30%. Ignoring other factors, what approximate annual net return does an investor get in Fund A?

The approximate net return in Fund A is 11.20% a year, found by deducting its 0.80% expense ratio from the 12% gross return. Expenses reduce the investor's return, so adding them or using Fund B's 1.30% would give wrong figures.

  1. A11.20%Correct
  2. B12.80%
  3. C10.70%
  4. D12.00%

Explanation

Expenses are charged to the scheme, reducing returns. Net return of Fund A = 12% - 0.80% = 11.20%. Fund B would give 10.70%, which is the wrong fund. Adding expenses (12.80%) is the wrong sign.

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