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Reviewed by Jul 30, 2021| Updated on
Investment Policy Statements (IPS) are documents that are drafted between an investor or a client and the folio manager. This document will outline the general understanding and rules for the folio manager. The investment policy statement gives general investment ambitions and goals of a client and describes the tactics that the folio manager will need to follow and employ in order to meet the set objectives.
Particular details on concerns such as asset allocation in the portfolio, liquidity requirements, and risk profile and tolerance are mentioned in the investment policy statements. Therefore, the investors must disclose what they are looking for and how much of a risk they are willing to bear when they sit down to discuss the same with the folio manager. This will set the expectations clear and will help the folio manager make informed decisions. This will, in turn, benefit the investors in the long run.
Investment policy statements are often used by financial advisors. This is done so as to document the investment plans of their clients (investors). This document will give guidance to make an informed decision and will serve as a blueprint to a successful investment journey and defend against the possible roadblocks or mistakes that may happen over the course of the investment tenure.
A well-planned IPS will generally include only the actionable provisions that are designed to be followed upon, and this will help the financial advisors to calm down and advise their clients (investors) who are insisting on making significant or drastic changes to their portfolio when the markets seem unfavourable.
Apart from the goals, priorities, and preferences, a well-documented IPS will go onto establish a procedural review methodology which will go on to enable the investors in order to remain focused on their long-term goals despite the times at which the markets seem unfavourable.
An IPS will contain all information related to the accounts, asset allocation, and the amount accumulated and the extent of the allocation made towards different assets.