The purpose of an investment policy statement is to allow enough flexibility in capturing investment opportunities as well as provide parameters that will enable exercising caution in executing the investment plan. It shall also demarcate the investment policy and provide guidelines as to founding an overall investment strategy and enforce discipline. In addition, the statement shall lay the foundation that shall help in overseeing the management of the investment fund. To elaborate further, the investment policy statement shall also state the standards and disciplines to be adopted for evaluating the performance of the staff, investment managers, custodians and consultants to the investment, in an effective manner.
The investment policy statement provides the base for all future investment decisions that will be made by an investor and is a guidepost that helps identify goals as well as create a system and discipline for making investment related decisions. After the investment policy statement has been adopted by the Trustees, decisions can be made deliberately instead of on the spur of the moment, thus providing more sagacious decision making capabilities. This is mainly due to the foresight and advanced planning that has taken place when deciding how to perform under different conditions and not becoming emotional in regard to investments.
Furthermore, the investment policy statement is meant to help the Plan's fiduciaries by making certain that investment related decisions are made prudently and it outlines the fundamental philosophies and processes involved in selecting, monitoring and evaluating the different investment options available.
The investment policy statement will define the Plan's investment objectives and spell out the roles of those responsible for the Plan's investments. It shall also specify the criteria as well as procedures
that are used to select different investment options and also the concerned investment managers. It will also help establish procedures for investments, standards for measurement and procedures for monitoring. Finally, it shall specify the approach that the Plan will take with regard to making unhindered investment options.
The investment policy statement shall be reviewed at least once every year and amendments to it may be made as and when appropriate, which will mirror changes in the investment market as well as changes to the objectives of the Plan or to other factors applicable to the Plan. Choosing an investment option will depend on how best to maximize returns without taking unnecessary risks as well as receiving returns that compare favorably to returns earned from other similar investments. It shall also provide a wide range of different investment opportunities as well as help control administrative and managerial costs.
The roles and responsibilities of those persons managing and administrating the Plan shall include creating and maintaining an investment policy statement, selection of an appropriate investment option and evaluating the Plan and its performance on a periodic basis. One of the most important responsibilities of the Investment Committee is to select the best investment policy and this should only be done after evaluating a wide range of investment options that span the whole spectrum of risk/return scenarios.
Choosing an investment policy statement is greatly simplified if one chooses to shop for it in the market where it is readily available at low cost and is usable in its entirety almost off the shelf. Not costing a good deal, this option is an economical, time saving and effective means of obtaining investment policy statements.
Author Resource:-
Wade Anderson is a CPA and operates DigitalWorkTools.com
Click to view an Investment Policy Statement
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