Welcome to the Charities Aid Foundation

We help donors to give more impactfully and charities to build their resilience so they can do more of their life-changing work.

Personal giving From one-off donations to long-term giving, or designing your personal philanthropic strategy, we work together to help you realise your giving ambitions. Corporate giving You have the vision for making a difference. So do we. We help you plan how to give based on your goals. Services for charities Helping your charity or social enterprise become more resilient. Insights Discover the latest insights for donors and charitable organisations to help create a greater impact About us We are a leading charity, working at the centre of the giving world. We help donors to give more impactfully and charities to build their resilience so they can do more of their life-changing work. Donate  
 
 
 

Personal giving

From one-off donations to long-term giving, or designing your personal philanthropic strategy, we work together to help you realise your giving ambitions.

DISCOVER OUR PERSONAL GIVING SOLUTIONS

Corporate giving

You have the vision for making a difference. So do we. We help you plan how to give based on your goals.

DISCOVER OUR CORPORATE GIVING SOLUTIONS

Services for charities

Helping your charity or social enterprise become more resilient.

DISCOVER HOW WE SUPPORT CHARITIES

Insights

Discover the latest insights for donors and charitable organisations to help create a greater impact

Explore

About us

We are a leading charity, working at the centre of the giving world. We help donors to give more impactfully and charities to build their resilience so they can do more of their life-changing work.

Find out more about CAF

What trustees should consider before approving investments

As trustees, you are asked to stretch every pound, manage risk and protect your charity’s reputation. When an investment fund is put on the table by an adviser, a fellow trustee or a colleague, the hardest part is not the product, it is the decision. This guide focuses on fund-based investments and intends to get you clear on what you are investing in and why, while also considering some practical factors. The following is not intended as a checklist and may not be exhaustive, but it should provide insight into the types of questions worth asking.

Clarifying investment objectives and timeframes

Fund documents are expected to address these questions. For example, a KIID (Key Investor Information Document) is a two-three page factsheet that provides a concise overview of the fund, while the prospectus is like the fund’s rulebook that contains all details. 

These documents should also specify the expected timeframe for achieving returns. For example, how much would be the total return (growth and income) in excess of inflation over a five-year period? It may seem obvious, but it is worth asking: “Does this investment meet my organisation’s objectives?”


Understanding the risks involved

Most fund documents will include a standard risk statement, for example:

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.

So how much risk does the fund take to achieve its returns? You will find this in the KIID and Prospectus, and you can quickly check it by using the Synthetic Risk and Reward Indicator (SRRI). This rates the fund from 1 to 7:

  • 1-2 = very low movement in value (mostly cash)

  • 7 = frequent and significant swings in value

We have published a separate article on navigating risks and reward, but you should consider both the individual risks of the fund and how they fit with your wider reserves or other investments. For example. it may be that your charity can afford some risk with this investment because you have cash or lower risk investments elsewhere.

 

Mission alignment and reputational considerations

Check the scope of the investments that the manager is allowed to invest in. Any restrictions should be clearly stated, for example, the fund invests only in UK companies. Some investments, however, might conflict with your charity’s mission or risk alienating potential donors. Where possible, consider excluding, or at least have clear answers ready if you are asked why the investment is acceptable.  

 

Understanding the true cost of investment

Total costs matter, but headline rates may need context. A fund that consistently outperforms others may justify slightly higher charges. Always understand the total costs to your charity, for example, the Ongoing Charge for a fund should include all costs, not just the annual management fee.

When reviewing published performance, check how it is presented. Managers often quote performance net or gross of charges:

  • Net = after charges (what you usually get)
  • Gross = before charges. 

For example, passive funds track an index, such as the FTSE 100. Managers often show performance relative to the index without accounting for charges, which shows tracking accuracy. However, if the fund charges1%, your actual return would be the index return minus the 1%, not the quoted figure.

 

Setting clear measured of success

Although it might seem easy, it is important that everyone agrees on how to assess performance. Of course, a fund should achieve its stated objectives, but is that enough? Or do you want to compare it with similar funds? If so, how will you determine the comparison group – fund names may seem similar, e.g. XYZ Income and Growth, but the funds could have very different risk attitudes or areas of investment. 

 

Agreeing a review framework

Agree on how often your charity will review the investment, not just its value, but whether it continues to meet the requirements of your investment policy. For one or two investments, an annual review with a deeper look every three years is sufficient. For larger or more complex holdings, more frequent reviews may be appropriate.

You could also consider who conducts the review. You might appoint a sub-committee of interested or skilled individuals or bring in an adviser. Whoever conducts the review should provide recommendations to the Board for approval, as trustees remain legally responsible for acting prudently.

 

Flexibility and access considerations

Many commentators suggest avoiding stock markets or other high-risk investments unless you can leave the funds untouched for at least five years. This allows a reasonable time to give the potential for any short-term losses to be recovered. 

Consider any other restrictions, such as:

  • Lock-ins: Is there a minimum period when cannot access your investment?
  • Trading arrangements: Can you sell the investment on the same day or next day you decide to raise funds, or do you need to wait for a set trading date. For example, most charity property funds only trade monthly or even quarterly. 
  • Currency risk: If your funds are not denominated in sterling, consider the impact of exchange rates and related charges on the amount you may withdraw.

 

Managing and using investment income

If your charity relies on the income to fund services or grants, make sure you understand how frequently it is paid and how consistent the payments are.

If you do not need the income right away, decide what to do with it. Options include:

  • Add it to cash reserves, or 
  • Reinvest it automatically (many funds allow that). 

Reinvesting increases the possibility for future capital appreciation as you will have increased the amount invested, but remember it exposes that extra amount to market fluctuations.    

If you are thinking of investing as a charity then our guide to charity investment will help get you started.

For more detailed advice tailored to your charity’s specific needs, you can contact our dedicated team at:

T: 03000 123 3444

E: clientrelations@cafonline.org

Disclaimer: This article is for general informational purposes only and does not constitute financial advice. Charities should seek independent financial advice before making investment decisions. CAF Financial Solutions Limited (CFSL) does not provide financial advice and accepts no responsibility for any decisions made based on this content.

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.

CAF Financial Solutions Limited (CFSL) is authorised and regulated by the Financial Conduct Authority under registration number 189450. CFSL Registered office is 25 Kings Hill Avenue, Kings Hill, West Malling, Kent ME19 4TA. Registered in England and Wales under number 2771873. CFSL is a subsidiary of Charities Aid Foundation (registered charity number 268369).