INVESTOR PROFILING

When a wealth plan is made, the first step is to assess your capacity for undertaking financial risk. The capacity for risk depends on your responsibilities, objectives, personality and many other variables.  In order to have a better understanding a risk profile is made, which analyzes an individual’s ability to assume financial risk as part of his/her investment portfolio.  The profile has two components – risk appetite and risk tolerance. Risk appetite is the amount of risk one is willing to take, while risk tolerance is the amount of risk your finances can handle. Your risk tolerance and appetite determine your asset allocation and drive the need to revisit your financial strategy from time to time. Deciding how much risk is good and how much is bad, depends primarily on your impending responsibilities and feasibility of lifestyle. It is gauged by factors such as demographics (age and life stage) and socio-economic profile attributes (habits and lifestyle).

Through the investor profiling, our team is able the determine:

1. Propensity: This takes into account the historical financial decisions taken by the client.

2. Attitude: This determines the client’s willingness to take risk. In this section, the client’s reactions to various risk-return situations is evaluated.

3. Capacity: This measures the financial constraints of the client or in other words the client’s financial ability to take risk.

Arhaum Enterprises(Indian Wealth Management) primarily determines the risk-taking ability of the investor, through the financial decisions made by the investor in the past and through his reactions to risk-return trade-offs.  We have developed a comprehensive yet simple questionnaire-based investor profiling model. The model assesses clients on their investment propensity, attitude and capacity. The clients are explained the significance of each of the questions and their responses are scored to arrive at a final risk score. The final risk score when combined with the investment horizon of the investor helps understand in determining asset allocation for the investor and plan a suitable strategy accordingly.