Investment Policy for Charities: A Practical Guide | LegalDocuments.co.uk

What this document is

A charity investment policy is a written statement, adopted by the trustees, that explains how the charity will manage the funds it holds beyond short-term operating cash. It covers the purpose of the investments, how much risk the board considers appropriate, the mix of asset types that may be used, any ethical or mission-related restrictions, who is authorised to make decisions, and how performance will be measured and reviewed.

For most charities in England and Wales, the legal backdrop is the Trustee Act 2000, the charity's own governing document, and guidance published by the Charity Commission (notably CC14 on investment). Trustees have a general duty of care when exercising investment powers, which includes taking advice where appropriate, considering diversification, and keeping investments under review.

The policy is not just paperwork. It gives trustees a reference point when markets wobble, when a new board member joins, or when an external manager proposes a change. It also demonstrates, if ever questioned, that the board is acting thoughtfully and within its powers rather than reacting on instinct.

How to use this document

1. Clarify the purpose of the funds. Before talking about stocks or bonds, the board needs to understand what the money is actually for. Is it permanent endowment that must be preserved, expendable reserves, or cash held for a specific future project? Different pots will have different time horizons and different tolerances for ups and downs, and the policy should distinguish between them clearly.
2. Set the risk appetite. Trustees should discuss openly how much short-term loss the charity could absorb without harming its work, and record that conclusion. This means thinking about the charity's income streams, its commitments to beneficiaries, and how dependent the budget is on investment returns. A cautious profile is not automatically the right one, but the choice should be deliberate and documented.
3. Decide on ethical and mission-related considerations. Many boards want to avoid investments that conflict with their charitable purposes, and some actively seek investments that advance them. The policy should state any exclusions (for example, tobacco or fossil fuels), any areas of positive interest, and how the trustees have weighed these against financial return, consistent with Charity Commission guidance.
4. Define roles, delegation and decision-making. The policy should make clear who does what: the full board, an investment committee, staff, and any external manager. If investment management is delegated, the terms of that delegation, the reporting expected, and the limits of the manager's discretion all belong in the document. Trustees remain responsible even when they delegate.
5. Build in monitoring and review. Markets move, charities change, and policies go stale. The document should say how often performance will be reported to trustees, against what benchmarks, and when the policy itself will be reviewed (annually is common, with an interim review if something material changes). Keeping minutes of these reviews is part of good governance.

Common questions