Investment Policy refers to the document which explains a company’s investment and asset management objectives, goals and guidelines. Investment policy also refers to the law or regulation of the government which encourages or discourages foreign investments.
A policy statement includes the information on the matters of risk tolerance, asset allocation framework and liquidity requirements of a company. It is a client specific statement which is designed to address the the goals, hindrances and the overall procedures that regulate the investment related activities of a company. It should be both specific and broad enough at the same time. It should set forward rules and operational guidelines for monitoring all the aspects of the investment program. It should be a document which can be easily understood and implemented by all the relevant parties.
What constitutes an Investment Policy?
A good investment policy should be flexible enough in its implementation so as to allow response to short term risks and opportunities. The policy may differ depending upon the particular needs of a company. Generally, it includes, objectives, asset allocation framework, scope and purpose and so on.
In today’s challenging and changing investment landscape, it is very essential to have a clearly articulated and well defined investment policy. It must serve as a blueprint for the companies who want to meet their goals while minimizing the total portfolio risk.
Investment policy is the plan or the policy the company will adopt in the current financial year to fullfill its goals or objectives with minimum risk factors involved. But in the world of finance even a newbie knows risk factors cannot be minimum. How can the investment policy of a company be client specific?