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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Case Studies in Comprehensive Financial Advice

A client with a high risk tolerance but a stated need to fund a child's admission fee in 8 months has asked to invest the entire sum in small-cap equity. What is the most appropriate advice?

The adviser should keep the money in low-volatility, liquid instruments. Although the client is willing to take risk, an 8-month fixed liability means the ability to bear losses is low, so suitability requires capital protection for this goal.

  1. AAgree, since high risk tolerance justifies equity for any goal
  2. BInvest in small-cap equity now and review after the fee is paid
  3. CDelay the fee payment until markets rise
  4. DHold the amount in low-volatility instruments, because the short horizon limits risk capacityCorrect

Explanation

Risk profile combines willingness and ability to take risk. A fixed liability in 8 months gives low capacity for loss, so capital safety and liquidity take priority over the client's stated appetite.

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