subject: Behavioural Finance

: 15 MARKS

Mohit is a new financial advisor chosen by Mr. Sunny who is a sales manager in a leading private IT company in India. Sunny is not happy with the falling interest rates and keeps most his savings in stocks. Mohit enquires from Sunny about the composition of the equity portfolio and finds out that 80% of the corpus is invested in the stock of Sunnys employer. Sunny feels that he has a role in personally contributing to the performance of his company's stock market price. This belief had made Sunny to keep a large proportion of his total portfolio in his companys stock. However, Mohit advises Sunny about the high level of risk in such investment strategy. But Sunny is adamant and pays no heed to the advice.

What kind of biases are being exhibited by Sunny? Justify your answer. (5) If you were in position of Mohit, how will you try and convince the client to modify the portfolio? What will be your recommendations about the changes which should be done? (10)

WORD LIMIT: Maximum 400 words