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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Behavioural Finance in Practice

Caselet: Ms. Kapoor received a Rs 5 lakh bonus and put it in a savings account labelled 'fun money', which she spends freely, while she refuses to touch her Rs 5 lakh emergency fund even though she carries a credit card balance at 36% interest. Which adviser action best addresses the bias involved?

The adviser should show that money is fungible and that using spare funds to repay the 36% card debt improves her overall finances. Her rigid buckets reflect mental accounting, which causes costly decisions like holding low-yield cash while paying high interest.

  1. AEncourage her to keep the separate buckets because they improve discipline
  2. BShow that money is fungible and that using funds to clear the 36% debt improves her overall positionCorrect
  3. CAdvise her to invest the bonus entirely in equity
  4. DTell her to avoid reviewing the portfolio frequently

Explanation

Her behaviour is mental accounting: treating money differently by label. Pointing out that rupees are fungible and that repaying 36% debt beats earning savings interest corrects this. Keeping buckets rigidly or going all in on equity does not solve the cost of expensive debt.

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