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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Risk Profiling for Investors

Caselet: Mr. Arjun Mehta, 45, has a monthly income of ₹2,00,000 and monthly essential expenses of ₹80,000. He holds an emergency fund of ₹3,00,000 and has no other liquid assets beyond his investments. Using a rule that an emergency fund should equal 6 months of essential expenses, what is the shortfall, and how does it affect his risk capacity?

The shortfall is ₹1,80,000, since six months of essential expenses is ₹4,80,000 against the ₹3,00,000 held. This inadequate liquidity lowers his risk capacity, as emergencies could force sale of risky investments at a loss, until the fund is built.

  1. AShortfall ₹1,80,000; it lowers risk capacity until the fund is builtCorrect
  2. BShortfall ₹1,20,000; it has no impact on risk capacity
  3. CShortfall ₹1,80,000; it raises risk capacity since he earns well
  4. DShortfall ₹3,00,000; it has no impact on risk capacity

Explanation

Required fund = 6 × 80,000 = ₹4,80,000. Existing = ₹3,00,000, so shortfall = ₹1,80,000 (check: 3,00,000 + 1,80,000 = 4,80,000). Insufficient liquidity means a shock could force sale of risky assets at a loss, reducing risk capacity until fixed. The ₹1,20,000 figure wrongly uses 5 months.

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