NISM X-A Investment Adviser Level 1 key terms

A recommendation about buying, selling, or holding a security or investment product, given for consideration and directed to a specific client's needs rather than to the public at large.

A person or firm registered with SEBI to give investment advice for consideration as a profession or business, including advice on securities and investment products.

A legal obligation to act in the client's best interest ahead of the adviser's own, requiring loyalty, care, disclosure of conflicts, and avoidance of exploitation of the client's trust.

The requirement that a recommendation fit the client's risk profile, investment objective, financial situation, and knowledge, so that unsuitable products are not recommended even if the client asks for them.

A structured process of gathering information on a client's objectives, time horizon, income, liabilities, liquidity needs, knowledge, and tolerance for loss to classify the client's risk capacity and attitude.

The level of investment volatility and possible loss a client is emotionally and financially willing to accept, often measured through a questionnaire and discussion rather than assumed from age or wealth.

The objective ability of a client to absorb losses without jeopardising essential goals, determined by income stability, assets, liabilities, insurance cover, and the time available before funds are needed.

The period over which an investor's money can remain invested before it is needed for a goal, which strongly influences the acceptable level of equity exposure and volatility.

Dividing a portfolio among asset classes such as equity, debt, gold, and cash to balance risk and return in line with the client's objectives, horizon, and risk profile.

A long-term target mix of asset classes based on the client's goals and risk profile, kept stable and revisited only when circumstances or objectives change materially.

Short-term deliberate deviations from the strategic mix to exploit market views or valuations, which increase tracking error and must be justified and disclosed to the client.

Restoring a portfolio to its target weights after market movements or cash flows shift the mix, typically by selling overweight assets and buying underweight ones, often on a threshold or calendar basis.

Spreading investments across securities, sectors, issuers, and asset classes so that any single loss has limited impact on the overall portfolio's outcome.

Market-wide risk that affects nearly all securities, such as interest rate changes, inflation, or recession, and cannot be removed by holding more securities within the same market.

Risk specific to a company, industry, or issuer, such as a management failure or factory shutdown, which can be substantially reduced by holding a diversified set of securities.

A measure of how much a security or portfolio's returns tend to move relative to the overall market; a beta above one indicates greater sensitivity to market swings than the index.

A statistical measure of how widely returns vary around their average, commonly used as a measure of total volatility and therefore of investment risk.

A return measure that accounts for the risk taken to earn it, such as the Sharpe ratio, allowing comparison of portfolios that delivered similar returns with different volatility.

Excess return above the risk-free rate divided by the standard deviation of returns; a higher value means more return was earned per unit of total risk taken.

The return on an investment assumed to carry no default risk, usually proxied by short-term government securities, used as the baseline against which risky investments are compared.

Earning returns on previously earned returns so that the corpus grows exponentially over time; the effect strengthens with longer holding periods and reinvested income.

The principle that a rupee received today is worth more than the same rupee received later, because it can be invested and earn a return in the interim.

The general rise in prices over time, which erodes the purchasing power of money and means nominal returns must exceed it to produce real gains for the client.

The return on an investment after adjusting for inflation, roughly the nominal return minus the inflation rate, showing the actual increase in purchasing power achieved.

The risk that an investment cannot be sold quickly at a fair price, or that early exit carries penalties, which matters greatly for clients with short horizons or uncertain cash needs.

The risk that a bond issuer or borrower fails to pay interest or principal on time, reflected in lower ratings and higher yields demanded by investors.

The risk that bond prices fall when market interest rates rise, with longer-duration bonds typically more sensitive to such rate changes than short-term ones.

A unit of ownership in a company that carries voting rights and a residual claim on profits and assets, offering capital appreciation potential with higher volatility.

A security representing a loan to an issuer, such as a bond or debenture, which pays interest and returns principal on maturity and ranks ahead of equity in repayment.

A pooled investment vehicle that collects money from many investors and invests it in a diversified portfolio managed by a professional asset management company, issuing units to investors.

The per-unit value of a mutual fund scheme, calculated as total assets minus liabilities divided by units outstanding, and declared at the end of each business day.

The annual fee charged by a fund, expressed as a percentage of average net assets, which reduces the investor's return and is subject to regulatory caps.

A fund with a fixed unit count that raises money once and is then listed for trading on an exchange, often at prices that differ from net asset value.

Bonds issued by the central or state government to borrow money, considered low-risk for credit because they are backed by sovereign taxing power, though their prices still move with interest rates.

A contract whose value is derived from an underlying asset such as a stock, index, or commodity, used for hedging or speculation and generally unsuitable for clients without relevant knowledge.

The SEBI framework governing registration, qualification, conduct, record-keeping, fee limits, and disclosure obligations of investment advisers operating in India.

The mandatory process of identifying a client, verifying identity and address, and recording financial details and objectives before providing advice, supporting anti-money-laundering compliance.

A situation where an adviser's own interest, such as commission from a product seller, could bias advice, requiring disclosure, avoidance, or fair treatment of the client.

An ongoing payment made by a product provider to a distributor out of the investor's assets; an investment adviser must generally avoid receiving such commission to prevent biased advice.

The duty to inform clients clearly about fees, conflicts, qualifications, the nature of advice, and material risks, so that decisions are made with full and fair information.

The obligation to maintain and preserve client documents, advice rationale, risk profiles, and fee records for the period prescribed by the regulator, available for inspection on request.