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

Caselet: Ms. Kapoor, 45, has a risk tolerance score that places her as 'moderately aggressive'. Her goal is a child's education fund of ₹20 lakh needed in 2 years, and her financial position leaves little room for shortfall. Which approach to this goal is most consistent with sound risk profiling?

The goal should be funded with low-risk instruments suited to its short two-year horizon and low shortfall tolerance, even though her overall tolerance is moderately aggressive. Risk profiling is applied goal by goal, considering time horizon and the consequences of a shortfall for each goal.

  1. AApply her overall moderately aggressive profile to every goal, including this one
  2. BMatch the goal's short horizon and low shortfall tolerance by using low-risk instruments for it, even though her general tolerance is higherCorrect
  3. CInvest in small-cap equity to earn the highest return in two years
  4. DDefer the goal until her risk tolerance score falls

Explanation

Risk profile is applied goal by goal. A 2-year, essential goal has very low ability to bear loss, so safe instruments suit it regardless of general tolerance. Applying the overall profile to every goal ignores horizon and capacity; small-caps are inappropriate for such a short term.

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