NISM Series XVII (Retirement Adviser) flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Replacement ratio

The proportion of pre-retirement income a retiree needs to maintain their standard of living, commonly planned at 60–80%. It is lower than 100% because work-related expenses fall while healthcare costs rise.

Longevity risk

The risk that a retiree outlives their retirement corpus, leaving insufficient funds in later years. It is managed by planning to an advanced age, using annuities, and keeping some growth assets in retirement.

Inflation risk in retirement

The risk that rising prices erode the purchasing power of a fixed pension or withdrawal. At 6% inflation, purchasing power halves in roughly twelve years, so income should be indexed or reviewed periodically.

Retirement corpus formula

Corpus needed equals the first-year post-retirement annual income need divided by the expected real return during decumulation. Real return is the nominal return minus inflation, giving the sustainable withdrawal rate.

Sequence-of-returns risk

The risk that poor investment returns early in retirement permanently damage the corpus because withdrawals during a downturn lock in losses. A cash buffer and flexible spending reduce this exposure.

Client fact-finding

The structured collection of a client's income, expenses, assets, liabilities, insurance, dependants, health status, risk tolerance, and existing retirement benefits. It forms the factual basis for all subsequent retirement advice.

Rule of 72

A shortcut for doubling time: divide 72 by the annual rate. At 8% growth money doubles in about nine years; at 6% inflation purchasing power halves in about twelve years.

Immediate annuity

A contract where a lump sum is paid to an insurer and income begins almost at once, continuing for life or a chosen term. It converts accumulated savings into a predictable retirement income stream.

NPS Tier I account

A long-term retirement account under PFRDA rules with restricted withdrawal before age 60. On normal exit, at least 40% of the corpus must be used to purchase an annuity.

NPS Tier II account

A voluntary, withdrawable savings account linked to the National Pension System. It has no lock-in and offers no dedicated retirement tax benefit, unlike Tier I.

EPF contribution split

Under the Employees' Provident Fund, employee and employer each contribute 12% of basic salary plus dearness allowance. A share of the employer contribution is diverted to the pension scheme.

Public Provident Fund

A sovereign-backed savings scheme with a 15-year lock-in, extendable in five-year blocks, and exempt-exempt-exempt tax treatment within prescribed limits. Partial withdrawal is allowed after specified years.

Systematic withdrawal plan

A facility that redeems a fixed rupee amount from mutual fund units at regular intervals, providing periodic retirement income. Corpus depletion accelerates when fund returns fall below the withdrawal rate.

Inflation-indexed annuity

An annuity whose payouts rise each year with a price index, protecting purchasing power. It pays a lower initial income than a level annuity because of the built-in escalation.

Annuity with return of purchase price

A life annuity variant where the nominee receives the original purchase price after the annuitant dies. It pays a lower pension than a plain life annuity because of the capital protection.

Reverse mortgage

A loan against home equity that pays the retiree a stream of income while they continue to live in the house. It suits house-rich, cash-poor retirees but reduces the estate left to heirs.

EEE tax treatment

Exempt-Exempt-Exempt means contributions, accumulation growth, and withdrawals are all tax-exempt within prescribed limits. PPF and specified retirement accounts follow this pattern.

EET tax treatment

Exempt-Exempt-Taxed means contributions and growth are untaxed but withdrawals are taxed, typically at slab rates. NPS and many pension products follow this structure.

Section 80CCD(1B)

An additional income tax deduction for contributions to NPS Tier I, available over and above the standard deduction ceiling, within the prescribed monetary limit.

Section 80CCD(2)

A deduction for an employer's contribution to an employee's NPS account, available over and above the Section 80C ceiling, subject to a prescribed percentage of salary.

PFRDA

The Pension Fund Regulatory and Development Authority regulates the National Pension System, pension funds, and annuity intermediaries. Advisers must know which regulator governs each retirement product.

KYC and AML obligations

Mandatory identity verification and anti-money-laundering checks before onboarding a client. Advisers must collect, verify, and retain records and report suspicious transactions as required.

Suitability documentation

The written record of a client's risk profile, time horizon, liquidity needs, and tax position, and the rationale that a recommended product fits them. It is essential evidence if a complaint arises.

Compounding future value

The future value of a monthly systematic investment equals the instalment times the annuity factor, using the monthly rate and number of months. Starting early raises the result sharply.

Glide path

A planned shift of asset allocation from equity-heavy to debt-heavy as the retirement date approaches. It reduces the risk of a market crash just before drawdown begins.

Portfolio rebalancing

Periodically restoring target asset weights by selling overweight assets and buying underweight ones. It controls risk drift and enforces a disciplined buy-low, sell-high behaviour.

Four percent rule

A rough benchmark that withdrawing 4% of a balanced portfolio in year one, then inflation-adjusting, may last about thirty years. It is not a guarantee and must be stress-tested locally.

Bucket strategy

Dividing the retirement corpus into short-term liquid, medium-term balanced, and long-term growth buckets. It matches assets to spending horizons and avoids selling equity in a downturn.

Withdrawal rate

The annual amount withdrawn from the corpus expressed as a percentage of its value. A rate above the portfolio's real return causes depletion, and the gap widens with poor early returns.

Fiduciary duty

The obligation to act in the client's best interest and place client interest above the adviser's own compensation. All actual and potential conflicts of interest must be disclosed.

Informed consent

The client's agreement to a recommendation after understanding its features, charges, lock-ins, surrender penalties, and risks, explained in language they can follow.

Churning

Excessive switching of a client's investments to generate commissions rather than to benefit the client. It is unethical and may breach securities regulations and the adviser's fiduciary duty.