A client scored high on risk tolerance but sold all his equity in a crash, and now wants back in with Rs 3 crore. Use his actual behaviour to set a revealed-tolerance allocation and a re-entry plan.

Set equity at about 40%, not 80%, because he has shown he sells at around a 24% loss. At 40% equity a 40% crash costs Rs 48 lakh, 16% of Rs 3 crore, safely inside the loss he could not sit through. Move the Rs 1.2 crore of equity in six monthly steps of Rs 20 lakh, and write down in advance that after a fall he rebalances by buying. Selling cost him about Rs 38 lakh of missed recovery last time.

Because a questionnaire measures how someone feels about losses in the abstract, and a crash measures what they do. A person who says he loves roller coasters and then asks to get off at the first drop has told you something more reliable than the ticket he bought. Manish sold when his portfolio was down about 24%, Rs 57.6 lakh, so that is his revealed toleranceThe level of loss a client has shown, by actual behaviour, that he will sit through, as distinct from what he says on a questionnaire., and the new plan has to keep a severe fall well inside it.

Put a number on it, gently, because it is the reason the plan matters. He sold about Rs 1.34 crore of equity at the low. Equity then rose 35% while his debt funds earned about 7%. The recovery he missed was roughly Rs 38 lakh, more than half of the paper loss he was trying to stop. The point is not blame; the loss was a paper loss until he sold, and the sale made it real. A plan he can hold through a fall is worth more than a bolder plan he abandons.

Work backwards from the worst fall you plan for. If equity can fall 40% and his portfolio loss should stay near 16%, well inside the 24% he could not bear, equity can be 16 divided by 40, which is 40% of the portfolio. On Rs 3 crore that is Rs 1.2 crore of equity and Rs 1.8 crore of debt, and the planned worst case is a Rs 48 lakh loss. His wish for 80% is noted and declined for now; if he holds 40% through a real fall, the allocation can be raised later on evidence.

In steps, with the rules written before the first step. Rs 1.2 crore goes into equity at Rs 20 lakh a month for six months, so neither a sharp rise nor a sharp fall in that window decides his outcome. Then two rules go into his investment policy: after a fall, the portfolio is rebalanced back to 40% by buying equity, and no sale happens without a meeting first. The limit is honest: staging gives up some return if markets rise steadily, and the plan only works if he signs it now, while he is calm.