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

Caselet: Ms. Nair, 38, has an adviser-recommended asset allocation of 60% equity and 40% debt. After a strong rally, equity forms 72% of her Rs 50 lakh portfolio, and she wants to let it run because 'my picks have always worked'. The adviser proposes rebalancing back to target. How much equity (Rs) must be shifted to debt to restore the 60:40 mix, assuming no taxes or costs and unchanged portfolio value, and which bias is most evident in her remark?

Rs 6 lakh must move from equity to debt. Equity is 72% of Rs 50 lakh, or Rs 36 lakh, against a target of Rs 30 lakh. Her statement that her picks always work shows overconfidence, which the adviser should counter through disciplined rebalancing.

  1. ARs 6 lakh; overconfidenceCorrect
  2. BRs 6 lakh; loss aversion
  3. CRs 12 lakh; overconfidence
  4. DRs 3.6 lakh; herding

Explanation

Current equity is 72% of Rs 50 lakh = Rs 36 lakh; target is 60% = Rs 30 lakh. Shift Rs 6 lakh to debt, giving Rs 30 lakh equity and Rs 20 lakh debt. Her belief that her picks always work reflects overconfidence. Rs 12 lakh wrongly uses the 12 percentage points as a rupee-lakh figure; Rs 3.6 lakh is 12% of Rs 30 lakh.

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