Investment Policy Statement (IPS)

In our life objectives and constraints will normally determine a policy. The policy serves as the governing document for all decision making process.

Back to our discussion the investment policy statement, it may cover issues such as reporting requirements, rebalancing guidelines, frequency and format of investment communication, manager fees, investment strategy, purification method and its time frame.

The elements of the investment policy statement as per below outlined:

• Brief client description.
• Objectives, goals, restrictions and responsibilities.
• Identification of duties and investment responsibilities of the relevant parties involved such as the client, the investment commitee, the Shariah advisor, the investment manager and the trustee.
• Schedule for Shariah compliance review, investment performance and IPS itself.
• Asset allocation considerations in developing the strategic asset allocation.
• Rebalancing guidelines for portfolio.

The investment policy statement acts as an investment strategy which reflects:

• the preferred risk return profile.
• the liquidity needs.
• the income generation
• the tax strategy.

The result from the investment policy is a set of portfolio choices between risky and safe assets. The allocation of resources between different asset clasess is called the asset allocation decision which is the most fundamental of investment decision.