Archive / Investment Adviser (Level 2) / Miscellaneous Aspects of Retirement Planning

nism-series-xb-general-equity-portfolio-closing-balance[ INVESTMENT ADVISER (LEVEL 2) ]

Mr. Z begins with Rs. 15,00,000 (30% of Rs. 50 Lakhs) in equity at age 52. He invests 20% of net annual savings each year into equity, earning 15% p.a. compound return. What is the closing balance of his general equity portfolio at age 60?

[ A ]Rs. 64,73,833

[ B ]Rs. 72,50,000

[ C ]Rs. 85,40,210

[ D ]Rs. 79,60,886[ CORRECT ]

Takeaway

Compounding Mr. Z's initial Rs. 15,00,000 equity allocation plus annual equity contributions at 15% p.a. across 8 years accumulates to a closing balance of Rs. 79,60,886 at age 60, so option D is correct.

Derivation

Starting with Rs. 15,00,000 (30% of the initial Rs. 50 Lakhs) at age 52, and adding 20% of each year's net annual savings into the equity sleeve, with the whole balance compounding at 15% p.a., the year-by-year roll-forward reaches exactly Rs. 79,60,886 by age 60. This tests whether a candidate can build a compounding schedule with two moving parts — a fixed opening balance and a growing series of yearly cash inflows — both earning the same 15% rate, mirroring the debt-side schedule but at the higher equity return, which the wrong options either shorten by a year or apply the wrong rate to.

Why the others fail

A — Rs. 64,73,833

This is the closing equity balance one year early, at age 59 (Year 7), not the full 8-year accumulation through to age 60.

B — Rs. 72,50,000

Reflects an erroneous compounding calculation that omits the final year's equity contribution and its associated growth.

C — Rs. 85,40,210

Assumes an inflated 18% equity compounding rate rather than the stated 15% return, overstating the closing balance.