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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Miscellaneous Aspects of Retirement Planning

Caselet: Mr. Rao, 60, retires with a corpus of Rs 2 crore. He wants to use a bucket strategy. Which design is most consistent with the approach?

The consistent design keeps the next few years of expenses in liquid, low-risk instruments while the remainder stays in growth assets that refill the safe bucket periodically. This limits the need to sell equities in a downturn, reducing sequence-of-returns risk while retaining growth.

  1. AHold the next few years of expenses in liquid and low-risk instruments, with the rest in growth assets refilled periodicallyCorrect
  2. BPlace the whole corpus in equity to beat inflation
  3. CPlace the whole corpus in a single annuity with no liquidity
  4. DKeep the entire corpus in a savings account to avoid sequence risk

Explanation

A bucket strategy segments the corpus by time horizon: near-term needs in safe, liquid assets and long-term money in growth assets, replenished over time. This reduces sequence-of-returns risk. The other options concentrate in one asset type and defeat the segmentation.

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