Remedies for an under-funded goal
The two courses of action the workbook names when a periodic portfolio review shows a goal is falling short of target — save more towards that goal, or divert funds from a less important goal.
In plain language
A goal-based portfolio is not "set and forget." The workbook builds a periodic review into the process specifically to catch goals that are drifting off track, and names what to do once one is found to be under-funded.
How it works
A periodic review asks 4 questions: are all the goals still relevant; are they on target for the required time-frame; are the investments performing as expected; and do they need to be changed if no longer suitable. If that review shows an investment has not generated the returns expected, the goal may remain under-funded — and the workbook names 2 remedies: the investor can save more for the goal, or divert funds from some other, less important goal.
The workbook is explicit that these decisions can only be made at the right time, when a review actually surfaces the shortfall — which is why it recommends the review happen at pre-fixed intervals, ideally at least once a year, as part of the financial planning process.
A worked example
Illustrative figures. Mr Ahluwalia has been investing Rs 25,000 a month for his daughter's education goal, targeting Rs 60,00,000 in 10 years. At his annual review in year 6, the accumulated value is only Rs 24,00,000, against a target trajectory of Rs 28,00,000 at this point — a Rs 4,00,000 shortfall caused by weaker-than-expected fund performance.
He has two remedies. Remedy 1: increase his monthly contribution, say to Rs 32,000, to close the gap over the remaining 4 years. Remedy 2: he also holds a separate, less urgent goal — a car upgrade fund of Rs 5,00,000 — and could redirect part of that towards the education goal instead of raising his overall savings rate. The review is what surfaced the choice; without it, the shortfall would only have become visible in year 10, with no time left to act.
Why NISM asks about it
Chapter 18 (Risk Profiling for Investors), the sub-section on "Review and Rebalancing," names both remedies for an under-funded goal, immediately after the four review questions. Expect a question asking what an adviser should do once a periodic review reveals a goal is under-funded.
Common exam traps
- The workbook names exactly two remedies — save more, or divert funds from a less important goal — not a menu of other options such as changing the goal's time horizon, which the workbook does not offer here as a stated remedy.
- A remedy can only be applied once a review has actually identified the shortfall — the workbook frames these decisions as only possible "at the right time," tied to the review cadence, not as continuous adjustments.
- "Diverting funds from a less important goal" assumes the investor has ranked their goals by importance — this remedy depends on that prioritisation already existing.
Where this is taught
Free preparation for NISM Series X-BRelated terms
- Capital protectionThe requirement, once income generation begins in retirement, that a product not put the underlying principal at risk in the pursuit of income — one of the two evaluation criteria the workbook sets for the retired phase.
- Cost of delayHow much more an investor must save each month for the same retirement corpus, purely because they started later — the workbook shows the required monthly saving multiply several times over across ages 30, 35 and 40.
- Financial goalA financial objective — a child's education, a house, retirement — to which an amount and a timeline have been assigned, so that it can actually be planned for and funded.
- Underfunding of the retirement goalA retirement corpus that turns out to be smaller than what is actually needed, forcing a retiree to cut expenses, postpone retirement, or find another source of income.
- Two-step education fundingThe workbook's method for funding a multi-year education goal from one set-aside: inflate each year's fee to the year it falls due, then discount the later years back to the set-aside date.