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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Case Studies in Comprehensive Financial Advice

Caselet: Mr. Vivek Shah, aged 58, plans to retire at 60 and expects to live to 85. His annual expenses today are Rs 6 lakh. Assume inflation of 5% pre-retirement and the adviser wants the retirement corpus at 60 computed as the expense in the first retirement year (inflated for 2 years, (1.05)^2 = 1.1025) multiplied by an annuity-due-style factor of 20 (that is, corpus = first year expense x 20). What corpus is required at age 60?

The required corpus is about Rs 1.32 crore. Annual expense of Rs 6 lakh inflates for two years at 5% to Rs 6,61,500, and multiplying by the stated factor of 20 gives Rs 1,32,30,000. Ignoring inflation would wrongly give Rs 1.20 crore.

  1. ARs 1.20 crore
  2. BRs 1.32 croreCorrect
  3. CRs 1.40 crore
  4. DRs 1.10 crore

Explanation

First retirement year expense = 6,00,000 x 1.1025 = Rs 6,61,500. Corpus = 6,61,500 x 20 = Rs 1,32,30,000, about Rs 1.32 crore. Rs 1.20 crore ignores inflation (6 lakh x 20). Working backwards, 1.323 crore / 20 = 6.615 lakh, which reconciles. Other options use wrong inflation periods.

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