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

Mr. Rao, aged 45, has a home loan EMI of Rs 40,000, a car loan EMI of Rs 10,000 and a monthly net income of Rs 1,00,000. An adviser tests his debt-servicing ratio against a guideline ceiling of 40% of income. Which conclusion is correct?

The debt-servicing ratio is 50%, because total EMIs of Rs 50,000 are half of the Rs 1,00,000 monthly income. This is above the 40% ceiling, so the adviser should recommend reducing or restructuring the debt.

  1. AThe ratio is 50%, above the ceiling, so debt should be restructured or reducedCorrect
  2. BThe ratio is 40%, exactly at the ceiling, so no action is needed
  3. CThe ratio is 25%, well within the ceiling
  4. DThe ratio is 10%, so he can take more loans

Explanation

Total EMIs = 40,000 + 10,000 = Rs 50,000. Ratio = 50,000 / 1,00,000 = 50%, which exceeds 40%. The adviser should suggest prepayment or restructuring. The 40% option counts only the home loan.

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