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

Which statement about the direct plan and the regular plan of a mutual fund scheme is correct?

The direct plan excludes distributor commission from its expenses, so its expense ratio is lower than the regular plan. Over time this typically gives the direct plan a higher NAV, because the regular plan bears the commission cost inside its total expense ratio.

  1. AThe direct plan has a higher expense ratio because it includes distribution commission
  2. BThe regular plan has a lower NAV growth because it has no distributor commission
  3. CThe direct plan has no distributor commission in its expenses, so its expense ratio is lower than the regular planCorrect
  4. DBoth plans always have identical NAVs and expense ratios

Explanation

Regular plans carry distribution commission within the total expense ratio, whereas direct plans do not. Hence the direct plan has a lower expense ratio and generally a higher NAV over time. Statements claiming the opposite or identical NAVs are incorrect.

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