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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Retirement Planning Basics

Mrs. Rao, aged 58, holds mostly equity in her retirement portfolio and plans to retire at 60. A adviser is worried that a sharp market fall in the first few years of retirement while she withdraws money could permanently damage her corpus. This concern is best described as:

This is sequence of returns risk: early market losses during the withdrawal phase force sales at low prices, shrinking the corpus permanently even if average returns later recover. It is distinct from reinvestment risk, which concerns falling rates on maturing proceeds.

  1. AReinvestment risk
  2. BSequence of returns riskCorrect
  3. CLiquidity premium
  4. DCurrency risk

Explanation

Sequence of returns risk arises when poor returns occur early in the withdrawal phase, forcing the sale of units at low prices and depleting the corpus faster than the same returns in a different order. Reinvestment risk concerns falling rates on maturing proceeds, a liquidity premium is extra return for illiquidity, and currency risk is irrelevant here.

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