How to write an investment policy for your charity

If your charity has investments, you need a written investment policy that sets out exactly what those investments should achieve.

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What is an investment policy?

A robust investment policy sets out your charity's goals and investment objectives - along with a clear strategy for achieving them. No two charities will have the same investment policy, but we've put together some general guidance to help you write a policy that works for your organisation.

Your investment policy acts as an important framework for:

  • Making investment decisions
  • Helping your trustees to manage your charity's resources effectively
  • Demonstrating that you're meeting your governance responsibilities 

Who is the investment policy for?

Your investment policy is for everyone involved with your organisation, including:

  • Trustees and employees
  • Investment advisers or managers
  • Beneficiaries and donors
  • The Charity Commission

What's included in the investment policy?

The core elements of a good investment policy set out your charity's approach to:

Scope

What kind of investments should your charity make?

Objectives

Do you want your investments to achieve growth (an increase in their value), income or both?

Risk appetite

Every investment carries risks, but it's important to understand and manage these risks. The types of risk you need to consider include:

  • capital volatility: are you comfortable with any fluctuation in the total value of your charity's assets?
  • diversification: are your investments spread across a range of asset classes and regions, or are they concentrated in particular areas?
  • restrictions: what is the impact of excluding particular stocks from your portfolio?
  • liquidity: how will you make sure you can access your money whenever you need it?
  • counterparty: what happens if another party involved in a transaction - such as a stockbroker - doesn't meet their obligations?
  • credit ratings: will you only deposit your money with a financial institution with a particular level of credit rating?
  • market: how will you cope with movements in inflation, interest rates and currency?
  • regulatory and governance: how will you manage the impact of changes to regulations or governance?
  • environmental, social and governance concerns: what effect could ethical investing have on your returns?

Balancing risk and return

Every charity investment carries a different level of risk. Donations-In-Deposit_Positive_RGB_Medium

Find out more about the different risk types

Amount available

How much money is available to invest?

Time horizon

How long do you want/need to invest for?

  • What is your investment timeframe? For example, are you investing to boost your working reserves in the short term, or are you investing in funds for the longer term? Are you investing for the short, medium or long term?
  • What are your long-term financial objectives?

Liquidity needs

How easily/how often do you need access to your money?

  • How will you access your investments? For example, by using drawdown to withdraw your funds as and when you need them?
  • How often do you need access?
  • How much money will you need access to?

Types of investments

You may want to invest in 'ethical' stocks (positive screening) or avoid investing in “unethical” stocks that go against your charity's aims (negative screening)

Decision-makers

Who can make the big financial decisions (eg a trustee, manager, etc) within your charity?

Key performance indicators

How will you measure the performance of your investments?

Reporting requirements

How often will you communicate investment performance to your stakeholders?

Responsibility and remit of the investment manager

If you have an investment manager, what decisions are you comfortable with them making on your charity's behalf?

Investment manager’s principles

What principles must your investment manager follow when taking investment decisions on behalf of your charity?

Responsibility of the trustees

Trustees have an obligation to secure the best financial return (within the appropriate level of risk) to be spent on the charity's aims. They also have legal responsibilities around taking advice, selecting the right investments and communicating their decisions.

So where do we start?

The Charity Commission guidance - CC14 is designed to support charities and their trustees in making confident, compliant investment decisions. The guidance:

  • Sits alongside other guidelines for charities and trusees for other areas of responsibility, like Charity Reporting and Accounting - CC15 and Internal Financial Controls - CC8.
  • Doesn’t supply specific investment or legal advice, but trustees who follow the guidance should be able to support decisions taken.
  • Doesn't supply specific investment or legal advice, but provides enough information to empower trustees to make informed decisions about investments.

You can find more helpful information on investment policies and the role of trustees on the:

Investment involves risk. The value of investments, and the income from them, can go down as well as up and an investor may get back less than the amount invested.  There is no guarantee about the level of capital or income returns that will be generated. Past performance is not a guide to future results.