Skip to content

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

Mr. Rajesh Iyer, 58, is a risk-averse government employee who retires in two years. In a questionnaire he scores high on willingness to take risk because he enjoys following markets, but his capacity score is low. For the final risk profile, the adviser should most appropriately:

The adviser should base the profile on the lower of capacity and willingness, which here is capacity. Taking more risk than the client can financially bear could jeopardise goals, so the more conservative measure prevails over the client's enthusiasm for markets.

  1. AUse the higher willingness score because the client prefers it
  2. BAverage the two scores and assign a moderate profile
  3. CBase the profile on the lower of capacity and willingness, here capacityCorrect
  4. DIgnore both scores and use the client's age alone

Explanation

When willingness and capacity differ, the prudent approach is to adopt the more conservative of the two. Here capacity is lower, so it governs the profile. Averaging could expose the client to risk he cannot financially bear, and age alone is not sufficient.

Did you get it right without looking?

One question tells you little. A timed set on Risk Profiling for Investors shows your real accuracy, how long you take and where you lose marks.

Practise Risk Profiling for InvestorsFree diagnostic mock

More Risk Profiling for Investors questions