NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2)

Retirement Products: formula sheet

Full chapter guide

Key formulas

Phase rule: Accumulation = build corpus; Decumulation = convert corpus into income; Decide which phase the client is in before choosing a product.
Risk-bearer rule: Guaranteed product → provider bears market risk; Market-linked product → investor bears market risk; Guaranteed does not mean inflation-proof. Market-linked does not mean assured.
Matching rule: Product choice = f(life stage, risk capacity, risk tolerance, liquidity need, tax, longevity); Risk capacity (ability) limits risk tolerance (willingness) when the two conflict.
EPF employee contribution: Employee share = 12% × (Basic + DA); The whole amount goes to the EPF account. The wage base is basic plus DA (and retaining allowance), not gross pay.
EPF employer contribution split: Employer 12% = EPS 8.33% (on wages up to ₹15,000, max ₹1,250) + balance to EPF; EPS is capped at ₹1,250 a month. Everything else in the employer's 12% goes to the EPF account.
PPF deposit limits: Minimum ₹500 and maximum ₹1,50,000 per financial year; The limit is combined for self and minor accounts. Up to 12 instalments a year are allowed. Excess deposits earn no interest.
PPF tenure: 15 financial years, extendable in blocks of 5 years; The year of opening counts as the first year. Maturity falls at the end of the 15th financial year.
PPF loan window: Loan: 3rd to 6th financial year, up to 25% of balance at end of the second preceding year; Only one loan is allowed at a time. The loan must be repaid for another to be taken.
PPF partial withdrawal: From 7th financial year: up to 50% of the lower of balance at end of the 4th preceding year or the immediately preceding year; Only one withdrawal per financial year.
PPF tax status: EEE: deposit (80C, old regime), interest and maturity are all exempt; Interest is tax-free in full, with no cap, for a PPF account.
EPF tax limits: Employee contribution above ₹2.5 lakh a year (₹5 lakh if no employer contribution): interest on the excess is taxable; Withdrawal is tax-free after 5 years of continuous service. Below 5 years it is taxable, and TDS applies above ₹50,000.
EPS monthly pension: Monthly pension = (Pensionable salary × Pensionable service) ÷ 70; Pensionable salary is the average monthly wage over the last 60 months before leaving membership, capped at ₹15,000. Service is in years.
EPS contribution: Employer to EPS = 8.33% of wages (wages capped at ₹15,000, so maximum ₹1,250 a month); Employee pays 12% to EPF only. The employer's 12% is split between EPS and EPF.
EPS eligibility: Pension at age 58 with at least 10 years of service; Early pension from age 50 with a 4% reduction for each year before 58. Minimum pension ₹1,000 a month.
Gratuity under the Act: Gratuity = Last drawn (Basic + DA) × 15 × Years of service ÷ 26; Part of a year over 6 months counts as a full year. Divisor 26 is working days in a month.
Gratuity eligibility: 5 years of continuous service (waived on death or disablement); Applies to establishments with 10 or more employees.
Gratuity tax exemption (private employee covered by the Act): Exempt = Least of (Gratuity received, ₹20,00,000, Formula amount); Government employees: fully exempt. Excess over the exempt amount is taxed as salary.
Annuity income (basic idea): Annual annuity = Purchase price × Annuity rate (% per year); For example, ₹10,00,000 at a 6% annuity rate gives ₹60,000 a year. The rate is set by the insurer.
Immediate annuity: Single premium → income starts after one payout interval; No accumulation phase, no deferment period.
Deferred annuity: Accumulation phase → vesting → payout phase; Used to build a pension corpus before retirement.
Protection vs income trade-off: More survivor or return features → lower starting annuity rate; Plain life annuity gives the highest starting income and no return of price.
Annuity certain: Payout for fixed term n years, regardless of survival; Not a life-contingent income. Does not cover longevity risk beyond the term.
Unit-linked pension plan: Corpus = units × NAV; Investment risk is borne by the policyholder until vesting.
SCSS eligibility: Age ≥ 60; or 55 to <60 if retired on superannuation/VRS and invested within 1 month of receipt of benefits; or defence retiree aged ≥ 50; Joint account is allowed only with the spouse, and the first holder must be eligible.
SCSS limits and tenure: Minimum ₹1,000 (multiples of ₹1,000); maximum ₹30 lakh; tenure 5 years + one extension of 3 years; The limit applies to the total across all SCSS accounts of the investor.
SCSS interest payout: Quarterly interest = Deposit × annual rate ÷ 4; Paid on 31 March, 30 June, 30 September and 31 December. The rate is locked at the time of deposit.
SCSS premature closure: After 1 year but before 2 years: deduct 1.5% of deposit; after 2 years: deduct 1%; No closure is allowed in the first year, except on the death of the holder.
POMIS limits: Single ₹9 lakh; joint ₹15 lakh; tenure 5 years; monthly interest = Deposit × annual rate ÷ 12; Premature closure: after 1 year but before 3 years, 2% deduction; after 3 years, 1%.
PMVVY (closed to new buyers from 31 March 2023): Age ≥ 60; term 10 years; fixed pension; purchase price returned on survival to maturity or to the nominee on death; Run by LIC. Pension could be monthly, quarterly, half-yearly or yearly.
Bank deposit insurance: DICGC cover = ₹5 lakh per depositor per bank (principal + interest); Covers deposits in one bank across accounts, not per account.
RBI Floating Rate Savings Bonds (Taxable): Tenure 7 years; interest half-yearly; rate resets every 6 months; senior citizen lock-in: 60-70 years 6 years, 70-80 years 5 years, 80+ years 4 years; Not tradable in the secondary market. The rate is linked to the NSC rate plus a spread.
Withdrawal rate: Withdrawal rate = Annual withdrawal ÷ Corpus × 100; Example: ₹6,00,000 a year from ₹1,00,00,000 is 6%. Lower rates are safer.
Corpus after one year of SWP (simple): Closing corpus = Opening corpus × (1 + r) − Annual withdrawal; Assumes withdrawal at year end. If withdrawn monthly, the corpus earns slightly more.
Units redeemed in SWP: Units redeemed = Withdrawal amount ÷ NAV on that date; A fixed-amount SWP redeems more units when NAV is low.
Solution-oriented retirement fund lock-in: Lock-in = at least 5 years or till retirement age, whichever is earlier; Applies to SEBI's retirement solution-oriented category.
Sustainable income test: Withdrawal rate ≤ Expected real return, to preserve capital; Real return = return after inflation. A rule of thumb, not a guarantee.
Reverse mortgage direction of cash flow: Lender pays borrower → loan balance rises (interest added) → repaid from the property later; Opposite of a normal home loan, where the balance falls with each instalment.
Loan balance growth: Loan balance = amounts received + accumulated interest and charges; The balance grows over time, so equity left for heirs shrinks.
Net rental yield: Net rental yield = (Annual rent − annual expenses) ÷ property value × 100; Expenses include maintenance, property tax and vacancy loss. Use net, not gross, for retirement income.
Real return: Real return ≈ nominal return − inflation rate; An approximation. Use it to judge whether a source keeps its purchasing power.

Quick revision

Accumulation phase builds the corpus; distribution phase converts it into income.
Defined benefit promises the payout; defined contribution depends on contributions and returns.
EPF is employer-linked and tied to salary; PPF is open to individuals with a government-set rate.
Check lock-in, contribution limits and partial withdrawal rules for PPF in your workbook.
EPS gives a pension, not a lump sum, and depends on service and salary under its rules.
Gratuity is a benefit from the employer after a qualifying period of service.
NPS is market-linked; learn Tier I versus Tier II and the exit and annuity requirements.
An annuity gives regular income in exchange for a purchase price; the option chosen changes the income.
Higher annuity income usually means no return of purchase price to heirs.
SCSS is for senior citizens, with a fixed tenure and interest paid at regular intervals.
SWP gives regular withdrawals but the corpus and income are not guaranteed.
Reverse mortgage lets a senior borrower convert home equity into income while staying in the home.

Common mistakes

Treating guaranteed products as risk-free. Fix: Remember they remove market risk but still carry inflation, reinvestment and liquidity risk.
Recommending market-linked products to a retiree just because the client says they are willing to take risk. Fix: Check risk capacity. If the client cannot absorb losses, capacity overrides willingness.
Calculating EPS as 8.33% of the full basic salary. Fix: Apply 8.33% to wages up to ₹15,000 only. The monthly EPS amount is at most ₹1,250. The rest of the employer's 12% goes to EPF.
Thinking the employee's 12% is also split between EPF and EPS. Fix: The employee's entire 12% goes to EPF. Only the employer's share is split.
Using actual salary above ₹15,000 in the EPS formula. Fix: Always replace salary with the lower of actual average salary and ₹15,000 before applying ÷ 70.
Dividing by 30 instead of 26 for gratuity covered by the Act. Fix: Use ÷ 26 for employees covered by the Act. State clearly that 26 is the working days in a month.
Treating an annuity certain as lifelong income Fix: Annuity certain pays only for the fixed term. Only life-contingent options pay as long as you live.
Assuming the plain life annuity returns money to heirs Fix: A plain life annuity stops at death with nothing returned. Heirs get money only under options that say so.
Recommending PMVVY to a new client Fix: Remember that PMVVY has been closed to new purchases since 31 March 2023. Treat it as a comparison point.
Using the old SCSS limit of ₹15 lakh Fix: Use ₹30 lakh as the maximum, and remember that the limit covers all SCSS accounts together.

Exam tips

Questions are usually caselets: pull out age, phase and risk capacity before reading the options.
Watch for absolute words such as always, risk-free or assured in options. They are often traps.
When risk tolerance and risk capacity conflict, the safer answer follows capacity.
Learn each product's category once: guaranteed or market-linked, accumulation or decumulation, so you can classify in seconds.
On NISM X-B, a wrong answer is penalised at 25% of the marks of that question, so on 2-mark caselet questions eliminate options before guessing.
Expect trap options that swap numbers: 8.33% vs 3.67%, ₹1,250 vs ₹15,000, year 5 vs year 7.
Read whether the question asks about the employee share, employer share or total. The splits differ.
In PPF questions, always count financial years, with the year of opening as year 1.