NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Evaluating the Financial Position of Clients
In personal financial planning, which ratio is calculated by dividing a client's total monthly EMIs on loans by the client's gross monthly income?
The debt service ratio is total monthly loan EMIs divided by gross monthly income. It shows how much of a client's income is committed to repaying debt, which helps an adviser judge repayment burden and capacity to take on further borrowing.
- ASavings ratio
- BDebt service ratioCorrect
- CLiquidity ratio
- DSolvency ratio
Explanation
The debt service ratio measures the share of gross income used to repay loan instalments. The savings ratio uses savings divided by income, the liquidity ratio compares liquid assets to monthly expenses, and the solvency ratio compares net worth to total assets.
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