Recommending Model Portfolios and Financial Plans for NISM certification
This final chapter puts everything together: turning a risk profile and goals into a model portfolio, filling it with suitable schemes, implementing it with SIPs, STPs and SWPs, and keeping it on track through rebalancing and reviews.
Mutual FundsSeries V-A62 MCQs5 lessons14 flashcards4 memory tricks
Practise Recommending Model Portfolios and Financial Plans free
What you'll learn
- Model portfolios
Explain what a model portfolio is and build one for each risk profile. - Allocation by life stage and goal
Adjust model portfolios for age and for each goal's horizon. - From allocation to schemes
Fill an allocation with a sensible number of schemes and avoid overlap. - Implementing and rebalancing
Choose SIP, STP, SWP or lump sum, and rebalance by calendar or by bands. - Reviewing, documenting and staying in scope
Run a review meeting and keep within a distributor's role.
Concepts explained
Model portfolios
A model portfolio is a template allocation for a risk profile, to be tailored to each investor's goals and existing assets.
What it means
- Conservative: mostly debt; moderate: balanced; aggressive: mostly equity.
- Include existing EPF/PPF/property when sizing allocations.
- Moderate model: 50:40:10
- Investor 55, retiring in 5 years
- Lean to 40:50:10 and plan a glide path
Answer: Adjusted to horizon
Rebalancing
Rebalancing brings a portfolio back to its target allocation by calendar, by threshold bands or by directing cash flows.
What it means
- Controls risk and enforces buy-low, sell-high.
- Consider tax and exit loads; prefer cash-flow rebalancing where possible.
- Target 60% equity, band ±5%
- Equity reaches 66% of ₹25 lakh
- Move 6% × 25 = ₹1.5 lakh to debt
Answer: Back to 60:40
Portfolio overlap and over-diversification
Holding many funds with the same stocks adds cost without adding diversification.
What it means
- Keep a few distinct schemes.
- Check overlap of top holdings.
- Use core and satellite.
Glide path
A glide path gradually reduces equity as a goal approaches, protecting the amount already built.
What it means
- Start shifting 2–3 years before a goal.
- Use STP or SWP from equity to debt to spread the shift.
Memory tricks
Rebalance by calendar, threshold bands or by directing cash flows.
Model portfolios are templates that must be tailored.
Many overlapping funds add cost, not diversification.
Shift from equity to debt gradually as a goal nears.
Try 3 NISM-style questions
Q1. Cash-flow rebalancing involves
- Directing new investments or withdrawals to restore target weights
- Selling everything once a year and starting again from scratch
- Borrowing money to buy more equity
- Ignoring allocation
Show answer
Answer: (1) Directing new investments or withdrawals to restore target weights
It avoids redemptions and tax.
Q2. When choosing two equity schemes for the same portfolio, the distributor should check that they
- Have distinct portfolios with low overlap
- Have identical top holdings, for consistency
- Belong to the same AMC, for convenience
- Have the same NAV
Show answer
Answer: (1) Have distinct portfolios with low overlap
Distinct schemes add real diversification.
Q3. For most retail investors, which approach usually works best?
- A stable strategic allocation with disciplined rebalancing
- Frequent tactical moves based on the latest market news
- Following tips from friends and social media
- Holding only cash
Show answer
Answer: (1) A stable strategic allocation with disciplined rebalancing
Discipline beats frequent timing.
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