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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Behavioural Finance in Practice

A client invests only when markets have risen for several months and stops his SIP after every sharp fall, citing recent news headlines. Which adviser approach best helps counter this recency-driven behaviour?

The adviser should agree a written investment policy with clear rules for continuing SIPs and periodic rebalancing, supported by long-term data. This reduces emotion-driven reactions to recent news. Chasing recent winners, daily monitoring or avoiding the topic would reinforce or ignore the recency bias.

  1. AAgree a written investment policy with rules for SIP continuation and periodic rebalancing, and review long-term data with the clientCorrect
  2. BSwitch the client entirely to the best-performing fund of the last quarter
  3. CAsk the client to monitor his portfolio daily to build confidence
  4. DStop discussing market falls so that he does not become anxious

Explanation

A documented policy with pre-agreed rules reduces emotional, recent-event-driven decisions, and long-term data gives perspective. Chasing last quarter's best fund reinforces recency, daily monitoring heightens reactions, and avoiding the topic leaves the bias unaddressed.

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