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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Introduction to Personal Financial Planning

Rohit, aged 30, earns a stable salary, has no dependants, and has a long investment horizon. His adviser says Rohit's 'risk capacity' is high. What does risk capacity primarily measure?

Risk capacity measures the client's financial ability to absorb losses without derailing goals, determined by factors like income stability, dependants and time horizon. It differs from risk tolerance, which is the psychological willingness to accept volatility.

  1. ARohit's emotional comfort with market volatility
  2. BRohit's past investment experience in equity
  3. CRohit's ability to financially absorb losses without jeopardising his goalsCorrect
  4. DRohit's preference for liquid instruments

Explanation

Risk capacity is an objective measure of how much loss a client can bear financially, driven by income stability, dependants, horizon and assets. Emotional comfort with volatility is risk tolerance (willingness), which is a separate concept, so that option is wrong.

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