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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Evaluating the Financial Position of Clients

Karan has the following balance sheet items: house Rs 80,00,000, financial investments Rs 30,00,000, car Rs 6,00,000, home loan Rs 40,00,000, car loan Rs 2,00,000, credit card dues Rs 1,00,000. His monthly gross income is Rs 1,50,000 and total EMIs are Rs 55,000. Which of the following correctly states his net worth and whether his debt service ratio exceeds the commonly used 40% guideline?

Net worth is Rs 73 lakh and the debt service ratio is about 36.7%, within the 40% guideline. Assets total Rs 116 lakh and liabilities Rs 43 lakh. EMIs of Rs 55,000 divided by gross monthly income of Rs 1,50,000 give 36.7%.

  1. ANet worth Rs 73,00,000; debt service ratio about 36.7%, within guidelineCorrect
  2. BNet worth Rs 73,00,000; debt service ratio about 45.8%, exceeds guideline
  3. CNet worth Rs 1,16,00,000; debt service ratio about 36.7%, within guideline
  4. DNet worth Rs 76,00,000; debt service ratio about 36.7%, exceeds guideline

Explanation

Assets = 80+30+6 = Rs 116 lakh. Liabilities = 40+2+1 = Rs 43 lakh. Net worth = Rs 73 lakh. Debt service ratio = 55,000/1,50,000 = 36.7%, below 40%. Rs 116 lakh ignores liabilities; 45.8% is wrong and 76 lakh omits the credit card dues and wrongly concludes the ratio exceeds the guideline.

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