The ability to bear a loss. Capacity is the ability to absorb a loss, set by finances and horizon.

The willingness to take risk. Appetite is how much risk a person is willing to take, separate from capacity.

Know your investor: risk appetite and capacity

Q: Before recommending a fund, a distributor should first:

Understand the investor's goal, horizon and risk. Understand the person first. The right fund follows from their profile.

Q: A written risk profile mainly:

Protects both investor and distributor. A recorded profile is evidence of suitable advice, protecting both sides.

Know your investor

Profile before you propose

Good selling starts with listening. Before a single fund is named, the investor’s goal, time and two sides of risk must be understood, and written down.

This lesson teaches a concept for the NISM Series V-A exam. It is education, not financial advice.

1
Before any recommendation, understand the investor: their goal, their time, and their comfort with risk.
2
Risk appetite is the willingness to take risk; risk capacity is the ability to bear it. Both matter.
3
A young earner with a long goal can usually take more risk than a retiree needing income.
4
Write down what you learn. A recorded profile protects both of you.

Rupee example

Two investors both want 'good returns'. One is 25 saving for 30 years, the other is 60 needing income. The same fund cannot suit both.

Practice

🔥 0 streak

Real exam format. Answer by voice, tap, or press 1 to 4. No negative marking, so always attempt.

Answer by voice

Tap the mic and say A, B, C or D. Typing is optional.

Before recommending a fund, a distributor should first:

Understand the person first. The right fund follows from their profile.

Commission and league tables are not the starting point.

Risk capacity means:

Capacity is the ability to absorb a loss, set by finances and horizon.

Willingness is appetite; the rest are unrelated.

Risk appetite means:

Appetite is how much risk a person is willing to take, separate from capacity.

Ability to bear is capacity; NAV and lock-in are unrelated.

A written risk profile mainly:

A recorded profile is evidence of suitable advice, protecting both sides.

It does not change returns, tax or price.

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NISM V-A syllabus

1What a mutual fund really is

2How a fund is built

3Who watches over it

4The offer document, decoded

5Getting funds to investors

6Selling the right way

8NAV, loads and the daily price

9Types of schemes, and picking one

10Return, risk and performance

11How gains are taxed

12Serving the investor

See the full roadmap →