Model portfolios
Also written Model portfolio
A ready-made asset allocation an adviser keeps on file for a type of client, such as a young earner or a retired couple, used as a starting point and then adjusted for the individual.
In plain language
No two clients are the same. But an adviser cannot design a fresh portfolio from scratch for every one of them either.
A model portfolio solves that problem. It is a ready-made asset allocation the adviser keeps on file for a type of client. One model might suit a young, single earner. Another might suit a retired couple with no family support.
The workbook is blunt about the numbers inside these models: they are illustrative and highly subjective. What matters is that the adviser holds a starting model for every distinct client profile, then tweaks it once the client's own details are known.
How it works
Four illustrative models from the workbook, matched to a life stage and a risk profile:
| Client profile | Risk profile | Equity or diversified | Other allocations |
|---|---|---|---|
| Young call-centre employee, no dependents | High | 50% equity (via SIP), 20% sector funds | 10% gold ETF, 10% diversified debt/FD, 10% liquid/savings |
| Young married single-income family, two school-going kids | Moderate | 35% equity, 10% sector funds | 15% gold ETF, 30% debt/FD, 10% liquid |
| Single-income family, grown-up children not yet settled | Conservative | 35% equity | 15% gold ETF, 10% gilt fund, 20% debt/FD, 20% liquid |
| Couple in their seventies, no family support | Conservative to moderate | 15% equity index | 5% gold ETF, 35% debt hybrid/MIS/SCSS, 30% debt/FD, 15% liquid |
The rule that matters more than any single percentage in that table: the Investment Adviser should hold a model portfolio for every distinct client profile, then tweak it once the client's specific circumstances are known. Health, wealth and family support can all move an allocation away from the generic model.
A worked example
Take the fourth row above, a couple in their seventies with no family support, and change one fact: this particular couple is physically and mentally sound, and sits on a large investible corpus. The workbook shows the adviser moving away from the generic 15%-equity model to:
10% equity, 15% diversified equity index, 10% gold ETF, 30% debt-oriented hybrid fund, 25% debt fund/FD, 10% liquid.
Equity exposure roughly doubles, from 15% to 25% of the portfolio (10% plus 15%), because the two facts that usually push a retiree towards debt, poor health and no support, are both absent here. The client profile label stayed the same; the model changed because the person did not fit the label exactly.
Why NISM asks about it
Chapter 18 (Risk Profiling for Investors), section 18.3.2 'Model Portfolios and their application', sets out the four illustrative allocations and the reworked couple example immediately afterward. Expect a question that gives a client description and asks which model portfolio, or which adjustment to one, fits best. The answer usually turns on risk profile and stage of life, not on memorising the exact percentages.
Common exam traps
- The percentages are illustrative, not fixed rules. The workbook says so directly; do not treat 50% or 35% as a number to defend.
- A model portfolio is a starting point, not the final advice. The adviser must still adjust it for the specific client.
- Two clients with the same label can get different models, as the retired-couple example shows, because health and family support move the allocation even within one risk category.
- Do not confuse a model portfolio with a portfolio management scheme run by a registered portfolio manager. This is an internal reference tool for an adviser, not a regulated investment product.
Where this is taught
Free preparation for NISM Series X-BRelated terms
- Aggressive investorsThe workbook's most risk-tolerant of its three investor grades — experienced investors, comfortable with a range of products, willing to put a significant portion of their assets at risk to pursue long-term return.
- Conservative investorsThe most risk-averse of the workbook's three investor grades — typically new to risky instruments, preferring bank accounts or safe income products, willing to risk only a small slice of assets.
- Financial risk toleranceA client's attitudes, values, motivations, preferences and experiences around investment risk, measured through a risk profile questionnaire under SEBI's mandatory risk-profiling requirement.
- Moderate investorsThe middle grade of the workbook's three-way investor classification: some experience of risky assets, willing to risk part of their money for long-term goals, but not most of it.
- Objectives and suitable investmentsThe workbook's four-way match between an investment goal, such as growth, income, liquidity or capital preservation, and the instruments that actually deliver each one.
- Objective risk assessment processSEBI's Regulation 16 requirement that an Investment Adviser's process for gauging a client's willingness and ability to take risk must be unbiased, not weighted to favour some answers over others.