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

While comparing two large-cap equity schemes, a distributor notices Scheme A has a Total Expense Ratio of 1.0% under its Direct plan and 1.8% under its Regular plan. What best explains the difference?

The Regular plan has a higher expense ratio because it includes distribution commission and related costs paid for the distributor's services, while the Direct plan has no such component. Both plans hold the same portfolio, so the Direct plan's NAV grows slightly faster over time.

  1. AThe Direct plan invests in different securities from the Regular plan
  2. BThe Regular plan includes distribution commission and related costs, which the Direct plan does not bearCorrect
  3. CThe Direct plan carries an exit load while the Regular plan does not
  4. DThe Regular plan is available only to institutional investors

Explanation

Both plans share the same portfolio. The Regular plan's expense ratio is higher because it includes distributor commission and distribution expenses, whereas the Direct plan has no such cost. This leads to a higher NAV for the Direct plan over time.

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