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

Ms. Kapoor, 35, has a high stated risk appetite but panicked and redeemed all her equity funds during a 15% market fall last year. In risk profiling, what should an adviser primarily do?

The adviser should weigh her demonstrated behaviour more and set a more moderate profile. Selling in a real fall shows her true tolerance is lower than stated, so the allocation should reflect actual behaviour while she is educated about market volatility.

  1. AGive more weight to her demonstrated behaviour and set a more moderate risk profileCorrect
  2. BRely only on her stated appetite because it is her own declaration
  3. CRecommend 100% equity to make up for the exit
  4. DIgnore her behaviour because it was a single event

Explanation

Revealed behaviour in a real drawdown is stronger evidence of actual risk tolerance than a questionnaire answer. The adviser should reconcile the gap and usually adopt the lower, more realistic tolerance, with education about volatility. Using only the stated view or raising equity ignores the evidence.

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