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Formula sheet/NISM Series X-A: Investment Adviser (Level 1)/Personal Financial Planning
[ PERSONAL FINANCIAL PLANNING ]

Personal Financial Health Diagnostic Ratios

Savings Ratio:(Total Annual Savings/Total Annual Income)×100[Benchmark:≥25−30%]\text{Savings Ratio}: (\text{Total Annual Savings} / \text{Total Annual Income}) \times 100 [Benchmark: \ge 25-30\%]
Expense Ratio:(Total Annual Recurring Expenses/Total Annual Income)×100=100%−Savings Ratio\text{Expense Ratio}: (\text{Total Annual Recurring Expenses} / \text{Total Annual Income}) \times 100 = 100\% - \text{Savings Ratio}
Accumulated Savings to Income Ratio:Total Accumulated Savings(excluding self-occupied home)/Annual Income[Benchmark:≥3.0x by age40]\text{Accumulated Savings to Income Ratio}: \text{Total Accumulated Savings} (\text{excluding self-occupied home}) / \text{Annual Income} [Benchmark: \ge 3.0\text{x by age} 40]
Net Worth:Total Assets−Total Liabilities\text{Net Worth}: \text{Total Assets} - \text{Total Liabilities}
Leverage Ratio:Total Liabilities/Total Assets∣Solvency Ratio:Net Worth/Total Assets=1−Leverage Ratio\text{Leverage Ratio}: \text{Total Liabilities} / \text{Total Assets}\quad\Big|\quad \text{Solvency Ratio}: \text{Net Worth} / \text{Total Assets} = 1 - \text{Leverage Ratio}
Liquidity Ratio:Liquid Assets/Monthly Expenses[Benchmark:4to6months of living expenses]\text{Liquidity Ratio}: \text{Liquid Assets} / \text{Monthly Expenses} [Benchmark: 4 to 6 \text{months of living expenses}]
Financial Assets Ratio:(Total Financial Assets/Total Assets)×100\text{Financial Assets Ratio}: (\text{Total Financial Assets} / \text{Total Assets}) \times 100
Debt−to−Income(DTI)Ratio:(Monthly Debt Servicing Outflow/Monthly Gross Income)×100[Benchmark:≤35−40%]Debt-to-Income (DTI) Ratio: (\text{Monthly Debt Servicing Outflow} / \text{Monthly Gross Income}) \times 100 [Benchmark: \le 35-40\%]
Variables

Liquid assets include savings accounts, liquid MFs, and short-term FDs; excludes illiquid real estate and personal jewellery.

Exam note

DTI > 40% signals heavy debt burden, restricting future borrowing capacity and goal savings.

Worked examples
Effective Annual Rate (EAR) on Credit Card Revolving Debt

A bank charges finance fees of 3.50% per month on unpaid credit card revolving balances. Calculate the Annual Percentage Rate (APR / Nominal Annual Rate) and the true Effective Annual Rate (EAR / Compounded Annual Cost).

Personal Financial Health & Leverage Diagnostic Ratios

A client presents the following financial profile: Annual Gross Salary = Rs 15,00,000; Annual Savings (PF, MF, Deposits) = Rs 4,50,000; Monthly Debt Servicing = Rs 45,000. Balance Sheet: Self-occupied house = Rs 75,00,000, Home Loan outstanding = Rs 45,00,000, Liquid Assets (Savings Bank + Liquid MFs) = Rs 9,00,000, Total Financial Assets = Rs 25,00,000, Total Debt Liabilities = Rs 50,00,000. Monthly living expenses = Rs 45,833. Compute Savings Ratio, Leverage Ratio, Solvency Ratio, Liquidity Ratio, and Debt-to-Income (DTI) Ratio.