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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Introduction to Personal Financial Planning

Meera Iyer has annual income of Rs 12,00,000. Her annual cash outflows are: living expenses Rs 6,00,000, EMI payments Rs 2,40,000 and insurance premiums Rs 60,000. She also wants to keep her EMI-to-income ratio at or below 30%. Which statement is correct?

Meera's EMI-to-income ratio is 20% (2.4 lakh over 12 lakh), and her annual savings are Rs 3,00,000, since total outflows are Rs 9,00,000 against income of Rs 12,00,000. Her ratio is comfortably within her 30% limit.

  1. AHer EMI-to-income ratio is 20% and her annual savings are Rs 3,00,000Correct
  2. BHer EMI-to-income ratio is 20% and her annual savings are Rs 2,40,000
  3. CHer EMI-to-income ratio is 25% and her annual savings are Rs 3,00,000
  4. DHer EMI-to-income ratio is 30% and her annual savings are Rs 3,60,000

Explanation

EMI ratio = 2,40,000 / 12,00,000 = 20%, within the 30% limit. Total outflows = 6,00,000 + 2,40,000 + 60,000 = 9,00,000, so savings = 12,00,000 - 9,00,000 = Rs 3,00,000. Rs 2,40,000 arises from wrongly omitting the Rs 60,000 insurance from outflows being subtracted twice in error.

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