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

Caselet: Mr. Sanjay Iyer, 45, has a risk-score framework where tolerance is scored 1 to 5 and capacity is scored 1 to 5. His tolerance score is 4 and capacity score is 2. The adviser's policy is to take the lower score as the overall risk score and map scores of 1-2 to Conservative, 3 to Moderate and 4-5 to Aggressive. Later, after he clears debts and builds a reserve, his capacity rises to 4 while tolerance falls to 3 after a market fall. What is the change in his overall category?

His category moves from Conservative to Moderate. Under the lower-of-two rule, the initial score is the minimum of 4 and 2, which is 2 and maps to Conservative. After the changes the minimum of 4 and 3 is 3, which maps to Moderate.

  1. AConservative to ModerateCorrect
  2. BConservative to Aggressive
  3. CModerate to Aggressive
  4. DAggressive to Moderate

Explanation

Initially min(4,2)=2, which is Conservative. Later min(4,3)=3, which is Moderate. Using the higher score (4 initially) would wrongly give Aggressive, and option B uses the capacity of 4 alone.

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