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

Which of the following best describes the Direct Plan of a mutual fund scheme?

A Direct Plan has a lower expense ratio because no distribution commission is charged, as the investor invests directly with the AMC rather than through a distributor. As a result, its NAV is typically higher than that of the Regular Plan of the same scheme.

  1. AUnits are bought through a distributor, who receives a trail commission from the scheme
  2. BIt has a lower expense ratio because no distribution commission is chargedCorrect
  3. CIt has a higher expense ratio because of the investor's direct involvement
  4. DIt can be bought only from the stock exchange

Explanation

In a Direct Plan, investors invest directly with the AMC without routing through a distributor, so no distribution commission is paid and the total expense ratio is lower. Consequently its NAV is generally higher than that of the Regular Plan of the same scheme. Option one describes the Regular Plan.

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