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

Ms. Kavita Rao, 35, has a risk profile of 'moderate'. Her goal is a Rs 20 lakh down payment in 2 years. She suggests investing entirely in small-cap equity funds because her profile is moderate. Which advice is most consistent with goal-based risk profiling?

The adviser should apply a goal-specific risk level. With a two-year fixed-amount goal, capacity for loss is low, so low-risk debt-type instruments suit it even though her overall profile is moderate. A profile score alone should not decide the product for every goal.

  1. AAccept, because the profile score alone determines the product
  2. BUse a goal-specific risk level: short horizon implies low-risk instruments for this goal despite the moderate overall profileCorrect
  3. CInvest in small-cap funds but only through SIP, which eliminates risk
  4. DDefer the goal by 10 years so equity becomes suitable

Explanation

Risk for a specific goal depends on its horizon and importance as well as overall profile. A 2-year, fixed-amount goal cannot tolerate deep drawdowns, so low-volatility debt or liquid products suit it. SIP does not eliminate risk, and deferring the goal is not advice driven by suitability.

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