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nism-series-xb-conservative-8-percent-yield-versus-goal-inflation[ INVESTMENT ADVISER (LEVEL 2) ]

In Case 2, Mr. Y invests his entire Rs. 2 Crore corpus meant to fund 5-year education (15% inflation) and 7-year marriage (10% inflation) goals in a conservative debt-equity mix earning 8% p.a. How is this investment policy characterized in the NISM curriculum?

[ A ]A little conservative, as an 8% nominal yield is modest compared to the 10-15% inflation rate of his target goals[ CORRECT ]

[ B ]Excessively aggressive with dangerous volatility

[ C ]An optimal zero-beta hedge eliminating all real inflation risks

[ D ]Legally non-compliant with SEBI portfolio management rules

Takeaway

An 8% nominal return against 10-15% goal inflation is characterized in the NISM curriculum as 'a little conservative,' making option A correct.

Derivation

Mr. Y's Rs. 2 Crore corpus, invested to yield 8% p.a. in a debt-heavy mix, must fund goals escalating at 15% (education) and 10% (marriage) — both materially above the portfolio's nominal return. This produces a negative real return relative to his specific goal inflation rates, meaning the corpus effectively relies on capital drawdown rather than real growth to meet targets. The curriculum labels this 'a little conservative' rather than reckless, since 8% is still a reasonable blended return in absolute terms — the mismatch is specifically against these particular high-inflation goals, testing whether candidates can judge suitability relative to goal-specific inflation rather than in isolation.

Why the others fail

B — Excessively aggressive with dangerous volatility

An 8% return reflects a debt-heavy, conservative multi-asset allocation; it does not indicate an aggressive or volatile investment strategy.

C — An optimal zero-beta hedge eliminating all real inflation risks

An 8% yield does not hedge against 15% education inflation; it actually results in negative real purchasing power growth relative to that specific goal.

D — Legally non-compliant with SEBI portfolio management rules

Individuals are free to invest their personal savings in any legal portfolio mix; there is no SEBI portfolio management rule being violated here.