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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Construction Process

Mr. Desai, 58, plans to retire in two years and will need a large part of his corpus for near-term expenses. He has low risk tolerance. Which asset allocation approach is most suitable for him?

A conservative allocation tilted towards debt and liquid instruments suits him best. His short horizon, need for near-term cash and low risk tolerance require capital preservation and liquidity, whereas small-cap, sector-concentrated or illiquid holdings carry risks he cannot afford.

  1. AAggressive allocation with a majority in small-cap equity
  2. BA conservative allocation tilted towards debt and liquid instrumentsCorrect
  3. CEntire corpus in a single sectoral equity fund
  4. DAllocation mainly in illiquid unlisted securities

Explanation

Short time horizon, near-term liquidity needs and low risk tolerance together call for capital preservation and liquidity. A debt and liquid-heavy allocation fits this. Equity-heavy, concentrated or illiquid choices conflict with his ability and willingness to take risk.

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