NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Miscellaneous Aspects of Retirement Planning
Caselet: Sunita, a retired teacher, holds all her savings in bank fixed deposits earning a rate slightly below inflation. Which statement best describes the principal retirement risk she faces?
Her main risk is inflation risk. Fixed deposits earning less than inflation cause the real value of her income and capital to fall each year, so her purchasing power shrinks even though the nominal amount is safe.
- AInflation risk eroding the real value of her incomeCorrect
- BHigh equity market volatility
- CCurrency risk on her deposits
- DDefault risk on government securities
Explanation
Returns below inflation mean her purchasing power declines over time, which is inflation risk. She holds no equities, so market volatility is not her main risk. Deposits are in rupees, so there is no currency risk, and no government securities are held.
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