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

Which statement about selecting between the direct plan and regular plan of the same mutual fund scheme is correct?

The direct plan has a lower expense ratio because no distribution commission is charged. Both plans invest in the same portfolio under the same manager, so the direct plan's lower costs usually lead to a higher NAV than the regular plan over time.

  1. ADirect plan has a lower expense ratio because no distribution commission is paidCorrect
  2. BDirect plan has a higher expense ratio because of extra services
  3. CRegular and direct plans hold different portfolios
  4. DRegular plan always gives higher returns due to advice

Explanation

Both plans share the same portfolio and fund manager; the direct plan has no distributor commission built into expenses, so its expense ratio and hence its NAV growth are generally better. Regular plan returns are lower by the commission difference.

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