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Investor Profiling

The key step in planning for your retirement is to invest keeping in mind your Investor (Risk) Profile. Risk profile is made up of 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 its strategy from time to time.

How is an Investor profile created?

Principal Retirement Advisors 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 arrive at the asset allocation for the investor.

Investor profiling considers the following factors:


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

Typical measures for propensity would be:

  • Ratio of high risk to low risk investments
  • Ratio of liabilities to assets
  • Ratio of liabilities to income

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


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

Typical measures for Capacity would be:

Income: amount and ability

Expenses: fixed versus discretionary as a percentage of income

Financial Obligations

A comprehensive investor profile will prove invaluable because from the results you (or your PRP) can establish an asset allocation.

Other Factors affecting Investor Risk Profiling

Investment risk tolerance can be affected by life’s events, both past and present.  At such times it is advisable to determine the effect of these life events and ascertain whether there is a need to alter the asset allocation.

Once your investor profile is arrived at, we proceed to Asset Allocation, which defines broad-based investment strategies to suit your risk profile score.

Have a question? Write to us at inquiry@principalindia.com.


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