NISM V-A Investment Landscape — Practice Questions

1. Ravi is 29, works in IT and earns Rs 90,000 a month. He has no dependants, an emergency fund of six months' expenses already parked in a bank deposit, and no experience of equity markets. He wants to build wealth for a house purchase he expects to make in about eight years, and tells his distributor he would be uncomfortable seeing his investment fall by more than a fifth in any year. He has Rs 20,000 a month to invest. Which asset class is best suited to Ravi's stated need?

Answer: B — Equity, because the goal is eight years away and he is seeking growth

Why: The need is long-term wealth creation and the horizon is eight years, which is long enough for equity's short-term volatility to smooth out. Ability and horizon both support equity; inexperience is a reason to educate and to start gradually, not to default to debt.

💡 Long horizon + growth need = EQUITY. Inexperience is not the deciding factor.

2. Ravi is 29, works in IT and earns Rs 90,000 a month. He has no dependants, an emergency fund of six months' expenses already parked in a bank deposit, and no experience of equity markets. He wants to build wealth for a house purchase he expects to make in about eight years, and tells his distributor he would be uncomfortable seeing his investment fall by more than a fifth in any year. He has Rs 20,000 a month to invest. Ravi's discomfort with a fall of more than about a fifth in any year is a statement about his:

Answer: B — Willingness to take risk

Why: Risk appetite has three parts: the need to take risk, the ability to take risk and the willingness to take it. His income, lack of dependants and eight-year horizon give him the ability; the discomfort he describes is about willingness, which is a matter of temperament.

💡 NEED, ABILITY, WILLINGNESS. Discomfort is WILLINGNESS.

3. Ravi is 29, works in IT and earns Rs 90,000 a month. He has no dependants, an emergency fund of six months' expenses already parked in a bank deposit, and no experience of equity markets. He wants to build wealth for a house purchase he expects to make in about eight years, and tells his distributor he would be uncomfortable seeing his investment fall by more than a fifth in any year. He has Rs 20,000 a month to invest. Given that stated tolerance, which equity category would be least appropriate as the core of his portfolio?

Answer: C — Small cap fund

Why: Smaller companies carry the highest risk in the equity hierarchy, so a small cap fund can fall considerably more than a fifth in a bad year. It may suit a satellite allocation later, but it is the wrong choice for the core of a portfolio belonging to an investor with his stated tolerance.

💡 Small cap sits at the risky end — wrong for a nervous investor's CORE.

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