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

Mr. Arvind Menon, 58, a salaried manager in Pune, tells his adviser he is comfortable with large equity swings and wants 90% equity. He plans to retire in 2 years, has no other income afterwards, and his corpus barely covers his retirement needs. How should the adviser treat his risk profile?

The adviser should recommend a lower equity allocation because his risk capacity is low. Willingness to take risk is high, but with two years to retirement, no later income and a barely adequate corpus, he cannot afford large losses. The lower of capacity and willingness should govern.

  1. AAccept 90% equity since willingness is high and willingness alone determines the profile
  2. BRecommend a lower equity allocation because his risk capacity is low despite high willingnessCorrect
  3. CRecommend 100% equity to make up for the corpus shortfall
  4. DIgnore the time horizon since it is irrelevant to risk profiling

Explanation

When willingness exceeds ability, the more conservative of the two should usually govern the allocation. His short horizon, lack of post-retirement income and thin corpus give low capacity. Option A ignores capacity; option C raises risk when he can least afford losses.

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