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

Ms. Kavya Iyer, 35, has a risk-profile questionnaire score placing her as 'aggressive'. However, her emergency fund is only one month of expenses, she has a short-term goal of paying a Rs 6 lakh wedding expense in 18 months, and her income is variable. Which action best reflects sound risk profiling practice?

The adviser should treat her limited capacity and the short goal horizon as constraints: build an emergency fund and keep the 18-month wedding money in low-risk instruments, while long-term goals can take more risk. A high questionnaire score alone cannot justify a fully aggressive allocation.

  1. AAllocate the entire corpus to small-cap equity because the score is aggressive
  2. BTreat the goal-wise horizon and capacity as constraints, building an emergency fund and placing the 18-month goal money in low-risk instrumentsCorrect
  3. CReject her as a client since she is inconsistent
  4. DMove all assets to a single fixed deposit for every goal

Explanation

A score reflects tolerance only; the thin emergency fund, variable income and 18-month goal limit capacity for that goal. The adviser should build liquidity and match short-term money to low-risk assets, while long-term goals may carry more equity. Putting everything in small caps ignores capacity; one FD for all goals ignores her tolerance and long-term goals.

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