Monthly surplus in hand
Also written Surplus in hand · Monthly cash surplus
The cash left with a household at the end of the month after every expense and investment — which is smaller than its savings, because mandatory deductions such as PF are savings too.
In plain language
Ask a family how much it saves and you will usually be told what is left in the bank at the end of the month. That figure is the monthly surplus in hand, and it is not the same as savings.
The surplus in hand is cash that is still lying there. Income, minus everything spent, minus everything invested.
Savings is a wider idea. It includes money the household put away during the month, even when that money never passed through its hands.
The clearest case is the provident fund. The contribution is deducted from salary before it is paid. The household never sees it, so it does not show up in the surplus. But it is still the family's money, and it is still saving.
So savings equals the surplus in hand, plus the investments made during the month, plus the mandatory deductions that are really savings. The workbook says the difference between the two is to be noted — and it is worth noting, because advice based on the smaller number understates what a family is really putting away.
How it works
Section 3.2 states the rule directly: the monthly surplus in hand is calculated after mandatory deductions, such as contributions made to provident fund and National Pension System. These are added back to the monthly surplus in hand to arrive at the savings.
Table 3.1 shows the arithmetic with its own line references. For the ABC Family:
| Line | Item | Amount |
|---|---|---|
| i | Total income | Rs 1,37,000 |
| xiii | Total expenses | Rs 1,12,000 |
| III | Investments | Rs 18,000 |
| xv | Monthly surplus in hand = i − (xiii + III) | Rs 7,000 |
| ii | Contribution to PF | Rs 9,000 |
| IV | Savings = ii + III + xv | Rs 34,000 |
| Savings ratio = IV ÷ i | 24.8% |
So the surplus is Rs 7,000 and the savings Rs 34,000 — nearly five times larger. The gap is the Rs 9,000 of provident fund plus the Rs 18,000 deliberately invested.
Note which deduction is added back and which is not. PF and NPS contributions are added back, because the money is still the household's. Tax of Rs 12,000 is not, because it is gone. The loan repayment of Rs 12,000 is also not added back in the workbook's line IV, even though part of an EMI repays principal.
The surplus in hand is also the figure that has to survive the workbook's cash management test in section 3.3.1. A surplus that exists on paper is not the same as cash in the bank: its example is Sunita, who earns Rs 50,000 a month of which Rs 15,000 is reimbursements. In a month she does not claim them, her actual inflow is Rs 35,000, and a budget built on Rs 50,000 throws up a cash crunch.
The formula
Monthly surplus in hand = Total income − (Total expenses + Investments)
Savings = Monthly surplus in hand
+ Investments made during the month
+ Mandatory savings deductions (PF, NPS)
Savings ratio = Savings ÷ Total income
A worked example
Illustrative figures. Vivek earns Rs 1,00,000 a month in hand-plus-deductions terms.
| Item | Amount |
|---|---|
| Gross monthly income | Rs 1,00,000 |
| PF contribution deducted | Rs 7,200 |
| Tax deducted | Rs 8,000 |
| Home loan EMI | Rs 22,000 |
| Essential living expenses | Rs 38,000 |
| Discretionary expenses | Rs 9,000 |
| SIP into mutual funds | Rs 10,000 |
| Total expenses (mandatory + essential + discretionary) | Rs 84,200 |
Monthly surplus in hand = 1,00,000 − (84,200 + 10,000) = Rs 5,800.
Savings = 5,800 + 10,000 + 7,200 = Rs 23,000, and the savings ratio is 23,000 ÷ 1,00,000 = 23%.
Vivek believes he saves Rs 5,800 a month, because that is what is left in the account. He actually saves Rs 23,000 — four times as much. An adviser who took his word for it would tell him he cannot fund a goal he can in fact fund.
The error also runs the other way. Suppose Vivek's Rs 5,800 is not really there, because Rs 12,000 of his salary is a reimbursement he forgot to claim this month. Then his surplus is negative and he is short Rs 6,200 of cash — while his savings figure of Rs 23,000 is unchanged. The savings number says whether he is building wealth. The surplus in hand says whether the month works.
Why NISM asks about it
Chapter 3 (Cash Flow Management and Budgeting), section 3.2 and Table 3.1, with the cash-management point at 3.3.1. The examinable line is the distinction itself: given a budget, compute the surplus in hand and then the savings, remembering to add back the PF or NPS contribution. The savings ratio in section 3.9 is built on the savings figure, not the surplus.
Common exam traps
- Surplus in hand is not savings. For the ABC Family they are Rs 7,000 and Rs 34,000.
- Investments are subtracted to reach the surplus and added back to reach savings. Miss either step and both numbers are wrong.
- PF and NPS contributions are added back; tax is not. The test is whether the money is still the household's.
- Use savings, not the surplus, in the savings ratio. The ABC Family's ratio is 24.8%, not 5.1%.
- A surplus on paper is not cash in the bank. Unclaimed reimbursements and front-loaded expenses are the workbook's own examples of the mismatch.
- The cash buffer for such a mismatch is not the emergency fund. Section 3.3.1 says a separate fund for short-term cash mismatch is different from an emergency fund, which exists for income disruption.
Where this is taught
Free preparation for NISM Series X-ARelated terms
- Savings ratioSavings relative to income, which the workbook says should ideally rise over the life cycle — read alongside a falling expense ratio and a debt-to-income ratio that peaks around a big loan.
- BudgetA list of all the money a household expects to receive and spend over a period, and when each amount falls due, used to check whether income is being managed well.
- Cash flow managementMaking sure a household's money comes in and goes out in a way that always leaves enough on hand to meet expenses when they fall due, even if total income comfortably exceeds total expenses.
- Cash flow mismatchA timing gap in which money going out falls due before money coming in arrives — so a household that earns more than it spends can still run short of cash and be pushed into costly borrowing.
- Income-expense statementA personal financial statement showing actual income earned and actual expenses incurred over a period, recorded on an accrual basis rather than when cash actually moves, revealing the real surplus or shortfall.
- Mandatory expensesThe first layer of a household budget: amounts that must compulsorily be spent — tax, loan repayment and provident fund contribution — before essential living or discretionary spending.