Unit study guide · NISM Series V-D
The Investment Landscape
5 questions in this unit
What this unit covers
- A family needs ₹4 lakh for an unavoidable school payment in four months. It already has a separate emergency reserve. Which factor should carry the greatest weight when choosing an investment for this ₹4 lakh?
- An investment grows by 8% over one year while the cost of the investor’s consumption basket rises by 6%. What is the exact real return, rounded to two decimals? Assumptions: Both rates cover the same one-year period. Taxes and fees are ignored.
- Dev rejects a suitable portfolio review because selling a poorly performing fund would make its loss feel “real”, even though the original investment reason no longer applies. Which behavioural bias most directly explains his response?
- Nila says she enjoys high-risk investments, but her income is unstable and she may need most of her savings within six months. What should a distributor conclude?
- A ₹10 lakh portfolio contains ₹7 lakh in equity funds and ₹3 lakh in debt funds. The investor’s target is 60% equity and 40% debt. With no new money, taxes or charges, what transfer restores the target? Assumptions: Values remain constant during the transfer. Taxes and charges are ignored.
Key ideas
From the practice bank · 1
A family needs ₹4 lakh for an unavoidable school payment in four months. It already has a separate emergency reserve. Which factor should carry the greatest weight when choosing an investment for this ₹4 lakh?
The investment must fit a short, fixed horizon and an essential payment. and the risk of a shortfall matter more here than seeking the highest uncertain return. Remember: An investment is suitable only if its risk and liquidity fit the goal.
Hint Start with the amount and the non-negotiable date of the goal.
V-D-001From the practice bank · 2
An investment grows by 8% over one year while the cost of the investor’s consumption basket rises by 6%. What is the exact real return, rounded to two decimals? Assumptions: Both rates cover the same one-year period. Taxes and fees are ignored.
Real return = (1.08/1.06 − 1) × 100 = 1.8868%, or 1.89%. The result measures the change in purchasing power, not just the rupee balance. Remember: Use growth factors for an exact inflation adjustment.
Hint Divide the investment growth factor by the inflation growth factor, then subtract one.
V-D-002From the practice bank · 3
Dev rejects a suitable portfolio review because selling a poorly performing fund would make its loss feel “real”, even though the original investment reason no longer applies. Which behavioural bias most directly explains his response?
Dev is allowing the pain of realising a loss to dominate a fresh assessment of the investment. The decision should instead consider future suitability and alternatives. Remember: Past purchase price should not replace a current suitability assessment.
Hint Focus on the unusually strong discomfort from recognising a loss.
V-D-003From the practice bank · 4
Nila says she enjoys high-risk investments, but her income is unstable and she may need most of her savings within six months. What should a distributor conclude?
Risk profiling considers both attitude and ability to bear loss. Nila’s uncertain income and near-term need constrain the risk her savings can reasonably support. Remember: A high risk appetite does not automatically create high loss-bearing capacity.
Hint Separate emotional comfort with risk from the consequences of losing money.
V-D-004From the practice bank · 5
A ₹10 lakh portfolio contains ₹7 lakh in equity funds and ₹3 lakh in debt funds. The investor’s target is 60% equity and 40% debt. With no new money, taxes or charges, what transfer restores the target? Assumptions: Values remain constant during the transfer. Taxes and charges are ignored.
Target equity is 60% × ₹10 lakh = ₹6 lakh. Moving the ₹1 lakh excess to debt leaves ₹6 lakh equity and ₹4 lakh debt. Remember: Rebalancing restores a chosen allocation rather than chasing the latest winner.
Hint Calculate the desired equity amount using total portfolio value.
V-D-005Liquidity in the stock market means how easily a quantity can be bought or sold.
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