NISM Series V-A · Unit 11 of 12 · about 7% of the paper
Helping investors with financial planning: NISM Series V-A notes and practice questions
Financial planning turns a product sale into a client relationship. This unit covers the planning process, goals, life stages, emergency funds and the discipline of reviewing.
What to know in Unit 11
- The financial planning process.
- Goal-based planning.
- Life stages and risk capacity.
Key terms, examples and exam traps
Financial plan
A financial plan is a documented roadmap that links the client's goals, resources, risk profile and time horizon to a set of actions.
Example. A distributor prepares a written plan showing how each goal will be funded.
Exam trap. This statement is false: A financial plan is a list of schemes with last year's returns.
Goal-based planning
Goal-based planning sets investments against specific goals, such as a child's education, with a target amount, date and priority.
Example. A client earmarks a separate investment for a house purchase in seven years.
Exam trap. This statement is false: Goal-based planning ignores timelines.
Emergency fund
An emergency fund is money kept in safe and liquid assets, usually three to six months of expenses, for unexpected needs.
Example. A client keeps six months of living costs in a liquid fund.
Exam trap. This statement is false: An emergency fund should be invested in small-cap equity.
Life-cycle stage
A client's life stage, such as starting a career, raising a family or nearing retirement, shapes goals, risk capacity and asset allocation.
Example. A 28-year-old and a 58-year-old need different mixes for the same sum.
Exam trap. This statement is false: Life stage has no effect on investment choices.
Risk capacity versus tolerance
Risk capacity is the ability to bear loss financially, while risk tolerance is willingness to bear it emotionally; advice should respect the lower of the two.
Example. A wealthy client who panics at small losses has high capacity but low tolerance.
Exam trap. This statement is false: Risk tolerance and capacity are the same.
Time value of money
Money today is worth more than the same sum in the future because it can earn returns; planning must discount future needs and compound savings.
Example. A client needs ₹50 lakh in 15 years and works out what to invest today.
Exam trap. This statement is false: A rupee today has the same value as a rupee in ten years.
Retirement planning
Retirement planning estimates the corpus needed to meet expenses after earning stops, allowing for inflation and longevity.
Example. A client works out how much he must save each month to retire at 60.
Exam trap. This statement is false: Retirement planning needs no allowance for inflation.
Step-up SIP
A step-up SIP increases the instalment amount at regular intervals, usually yearly, in line with rising income.
Example. An investor raises her SIP by 10% every year as her salary grows.
Exam trap. This statement is false: A step-up SIP reduces the instalment each year.
Periodic review
A plan should be reviewed at least once a year and on major life events, and rebalanced to the target allocation.
Example. A client's portfolio is reviewed every year and after the birth of a child.
Exam trap. This statement is false: Once made, a plan never needs revisiting.
6 practice questions
Read each question and choose your answer before opening the free mock, which shows the correct answer and the reason.
Q1. Which statement best describes “Risk capacity versus tolerance”?
- An emergency fund is money kept in safe and liquid assets, usually three to six months of expenses, for unexpected needs.
- A multi cap fund must invest at least 25% each in large, mid and small cap stocks, and at least 75% in equity overall.
- A flexi cap fund invests at least 65% in equity with no restriction on market-cap allocation, so the manager can move across large, mid and small cap.
- Risk capacity is the ability to bear loss financially, while risk tolerance is willingness to bear it emotionally; advice should respect the lower of the two.
Q2. Which term is described here? Goal-based planning sets investments against specific goals, such as a child's education, with a target amount, date and priority.
- Suitability
- Goal-based planning
- Product labelling
- XIRR
Q3. Which term is described here? An emergency fund is money kept in safe and liquid assets, usually three to six months of expenses, for unexpected needs.
- Yield to maturity (YTM)
- Emergency fund
- Cut-off time
- Mutual fund
Q4. Which statement best describes “Retirement planning”?
- A sectoral or thematic fund invests at least 80% in a particular sector or theme, such as banking or technology, and carries concentration risk.
- Real estate offers potential for appreciation and rental income but is illiquid, needs large capital and has high transaction costs.
- Retirement planning estimates the corpus needed to meet expenses after earning stops, allowing for inflation and longevity.
- Gold is held as a hedge against inflation and uncertainty; it can be owned through physical gold, gold ETFs, sovereign gold bonds or gold funds.
Q5. Which term is described here? A step-up SIP increases the instalment amount at regular intervals, usually yearly, in line with rising income.
- Unit
- SEBI
- Entry load
- Step-up SIP
Q6. Which term is described here? A financial plan is a documented roadmap that links the client's goals, resources, risk profile and time horizon to a set of actions.
- Selection criteria
- Risk-return trade-off
- Capital protection
- Financial plan
Frequently asked questions
How much of NISM Series V-A comes from Unit 11?
Unit 11 (Helping investors with financial planning) usually carries about 7% of the questions. The whole exam has 100 questions and the pass mark is 50%.
What should I study in NISM Series V-A Unit 11?
The financial planning process. Goal-based planning. Life stages and risk capacity.
Are these NISM Series V-A practice questions free?
Yes. Take the full free mocks to see the correct answer and the reason for every question.
Next
UpperCrust Academy is independent study material from UpperCrust Wealth. It is not affiliated with NISM, SEBI or AMFI. For education only. Not investment advice. Always confirm the latest syllabus and rules on the official NISM website.