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

Caselet: Mr. Rohit Sharma, 40, has a monthly expense of Rs 50,000, an emergency fund of Rs 3,00,000, and a goal of Rs 20 lakh for his child's education in 3 years, for which he has Rs 12 lakh saved. He has a moderate risk tolerance. Considering his goal, which assessment of his risk capacity for the education-goal corpus is most appropriate?

His risk capacity for this goal is low. The Rs 20 lakh education need is fixed, non-deferrable and only three years away, so there is little time to recover from losses. Age or a moderate tolerance does not change this goal-based assessment.

  1. AHigh, because he is only 40 years old
  2. BHigh, because his tolerance is moderate
  3. CLow, because the goal is near-term and fixed in amount, with limited ability to recover from a lossCorrect
  4. DCannot be assessed without knowing his equity holdings

Explanation

Capacity is goal-specific: a fixed, non-deferrable Rs 20 lakh need in 3 years leaves little time to recover from a drawdown, and he has a Rs 8 lakh gap. Age alone does not set capacity, and tolerance is a different dimension. Hence capacity for this goal is low.

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