Method · IA Regulation 16(c)
How the profile is made, and its limits.
InvestorDNA 1.1, as described in the public adviser edition. The adviser remains responsible for the risk profile and the advice.
What each part covers, and why it matters for advice
Regulation 16(b) asks the adviser to assess the risk a client is “willing and able” to take. InvestorDNA assesses the two halves separately. Willingness comes from risk appetite, through the client’s choices rather than a self-rating. Ability comes from cash-flow resilience and obligations: the cash flow that absorbs a shock and the commitments that claim money first.
Risk appetite
Your client sees: Risk appetite
Willingness to accept loss, from the client’s choices.
Cash-flow resilience
Your client sees: Cash-flow rhythm
Ability to bear loss: the cash flow that absorbs a shock.
Obligations
Your client sees: Responsibilities
Ability to bear loss: the commitments that claim money first.
Decision context
Your client sees: Investing story
Knowledge, experience and how decisions are made.
The kinds of evidence
Choices between rupee scenarios
Choices between two rupee scenarios sized to the client’s income band (hypothetical; no payout).
Self-reported history and circumstances
Structured questions with ranges, in English, Hindi or Hinglish. The questionnaire adapts: it skips what does not apply and follows up where it does. The income band from sign-up is reused, so income is not asked again.
Obligations, and whether they can bend
Indian household reality throughout: joint-family finances, FD and gold as reference points, festival and milestone cycles. Shame-neutral wording (“Many families…”), ranges and indirect questions for sensitive topics.
Life events, including grief, are asked once, with care and a pause option. Framed questions are checked for leading wording (Regulation 16(d)). No caste, religion or community identity; dowry is never asked. The session takes 20–25 minutes, and the client can pause at any point.
How results are produced
Fixed, versioned rules.
The same answers always give the same result. No artificial-intelligence tool computes or adjusts any result. The adviser reviews every record.
Limits to keep in mind
- Answers are self-reported, and the rupee scenarios are hypothetical; behavior with real money can differ.
- A profile reflects one point in time.
- Re-assess after material life changes and periodically (Regulation 16(f)).
- The record supports the adviser’s judgment. It does not decide suitability, products, allocation or timing.
How the limits are handled
- Adviser review and signature on every record; disagreement recorded with reasons.
- Re-assessment after life events, with changes shown against the earlier record.
Use of AI
Results by fixed rules; wording help only.
- Results
- Levels, archetype and findings come from fixed, versioned rules. No language model computes, adjusts or reviews them.
- Language model
- Helps word some narrative paragraphs in both editions, working from coded findings only. It never receives the client’s name, contact details, answers or amounts; the facts about the client are filled in on our own systems.
- Checks
- Every paragraph passes an automatic wording check before use: no advice, product or return language.
- Record
- Each use of the language model is logged with the client’s record.
The adviser remains solely responsible for the advice, including any use of AI tools, and must disclose the extent of AI use to the client — Regulations 15 and 18 of the SEBI (Investment Advisers) Regulations, 2013, as amended by the SEBI (Investment Advisers) (Second Amendment) Regulations, 2024 (SEBI/LAD-NRO/GN/2024/219, 16 December 2024).
The research the parts rest on
Risk appetite
A loss tends to weigh more than a gain of the same size, so the assessment asks for choices between gains and losses rather than a self-rating.
SourceKahneman & Tversky, “Prospect Theory: An Analysis of Decision under Risk”, Econometrica (1979)
SourceTversky & Kahneman, “Advances in Prospect Theory: Cumulative Representation of Uncertainty”, Journal of Risk and Uncertainty (1992)
Why choices, not only self-description
Questionnaires used in practice typically explain less than 15% of the differences in how much risk investors hold, and stated tolerance tends to run above the risk investors actually take.
SourceKlement, “Investor Risk Profiling: An Overview”, CFA Institute Research Foundation (2015)
SourceThompson, Feng, Reesor, Grace & Metzler, Financial Planning Review (2022)
Cash-flow resilience and obligations
The adviser’s duty is to assess the risk a client is willing and able to take, including the capacity for absorbing loss.
SourceSEBI (Investment Advisers) Regulations, 2013, Regulation 16(b)
A detailed method-and-limitations note is provided to subscribing advisers, and to regulators on request.