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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Case Studies in Comprehensive Financial Advice

While preparing a comprehensive financial plan for a new client, an investment adviser finds that the client has no emergency fund, a large credit card balance and no term insurance. Which action should normally be given the highest priority in the plan?

The adviser should first build an emergency fund, repay the costly credit card debt and arrange basic risk cover such as term insurance. These steps remove financial vulnerability, and credit card interest usually exceeds likely investment returns, so growth investing should follow later.

  1. ABuild a liquidity buffer and clear the high-cost credit card debt, while arranging basic risk coverCorrect
  2. BIncrease equity allocation to earn higher returns than the card interest rate
  3. CBuy a long-term endowment policy for tax saving
  4. DStart a retirement SIP in small-cap funds

Explanation

A sound plan first secures liquidity, removes expensive debt and covers key risks before pursuing return-oriented goals. Credit card interest is far higher than likely investment returns, so investing in equity first is unsuitable. Endowment and small-cap SIPs ignore the immediate vulnerabilities.

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