Investment Landscape

NISM Series V-D | 5 marks | Official workbook pages 17-39

What this chapter is about

Build the investor-first foundation: goals, saving versus investing, asset classes, risk, behaviour, risk profiling and asset allocation.

Core concepts

• A financial goal needs a target amount, time horizon and priority. Inflation must be built into the target amount.
• Saving protects near-term liquidity; investing accepts measured risk to pursue inflation-beating long-term growth.
• The four broad asset classes are equity, fixed income, real estate and commodities. Each differs on return, liquidity, volatility, cash flow and divisibility.
• Nominal return is the stated return. Real return is the return after adjusting for inflation.
• Key risks include inflation, liquidity, credit, market, interest-rate, reinvestment and concentration risk.
• Risk profiling combines willingness to take risk with capacity to absorb loss. The lower of the two should guide the recommendation.
• Asset allocation spreads money across asset classes. Diversification reduces asset-specific risk but cannot remove market-wide risk.
• Behavioural biases such as overconfidence, anchoring, loss aversion, recency and herd behaviour can distort decisions.

Formula and calculation sheet

Real return is approximately nominal return minus inflation.

Future goal value = present cost x (1 + inflation rate) ^ years.

Exam focus

• Physical gold does not generate regular income.
• Purchasing power falls because of inflation.
• Existing bond prices generally fall when market interest rates rise.
• Do not recommend a product before matching goal, horizon, liquidity need and risk profile.

Quick revision - 60 second scan

• Goal first, product second.
• Return, risk, liquidity and tax must be considered together.
• Diversification reduces unsystematic risk, not systematic risk.
• Interest rates up usually means existing bond prices down.