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Formula sheet/NISM Series V-A: Mutual Fund Distributors/Investment Landscape
[ INVESTMENT LANDSCAPE ]

Inflation-Adjusted Future Goal Value & Real Rate of Return

Future Goal Value(FV)=PV×(1+rinf)n\text{Future Goal Value} (FV) = PV \times (1 + r_{\text{inf}})^{n}
Real Rate of Return(rreal)=[(1+rnominal)/(1+rinflation)]−1≈rnominal−rinflation\text{Real Rate of Return} (r_{\text{real}}) = [ (1 + r_{\text{nominal}}) / (1 + r_{\text{inflation}}) ] - 1 \approx r_{\text{nominal}} - r_{\text{inflation}}
Variables

PV: Current cost of goal; rinfr_{\text{inf}}: Annual inflation rate; n: Years to goal. rnominalr_{\text{nominal}}: Stated investment return rate; rrealr_{\text{real}}: Net purchasing power growth rate.

Exam note

Essential for long-term goal setting (education, retirement). If nominal return equals inflation, real growth is zero.

Worked examples
Inflation-Adjusted Future Goal Value Calculation

A client wants to provide for her 8-year-old daughter's higher education, which is estimated to cost Rs 50 Lakhs in today's terms. The daughter will enter college 10 years from now (at age 18). If the expected education inflation rate is 8.0% p.a., calculate the future required corpus.

Asset Allocation Rebalancing Trade Execution

An investor establishes a 50:50 Strategic Asset Allocation between Equity and Debt with Rs 10 Lakhs in each (Total = Rs 20 Lakhs). Over 1 year, Equity appreciates by 20% while Debt declines by 5%. Calculate the new asset allocation and the exact rebalancing trade needed to restore 50:50.