Sample Investment Policy - Free Download
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This sample investment policy was written to save you and your company the time and money it would take to write your own from scratch. It was was formulated for a bank but can easily be adjusted to meet the needs of any institution. It is also an excellent guide for students in Investments. You can copy, paste and edit the information presented on this page, or you can download a copy of the properly formatted document. This excellent example investment policy statement was written by Keith Inniss, Fellow of the Institute of Canadian Bankers, and covers, among other things, the investment objectives including safety, liquidity and yield, prudence, ethics and conflicts of interest, investment transactions, investment parameters, including portfolio diversification, maturity limitations and portfolio management. Read the policy outline. Read the investment policy example. Download the full investment policy now free.
This investment policy statement applies to the investment of all operating funds of the Sample Bank Ltd. It does not cover the Staff Pension Fund.
The Sample Bank Ltd, hereinafter referred to as the “Bank”, obtains its funding primarily through the acceptance of a variety of deposits, and to a lesser extent through subordinated debt. It targets loans up to a maximum of 75% of total funds. Article 33(4) of the Central Bank Agreement requires that the Bank should maintain a minimum cash reserve, comprising ECD notes and coins and balance with the Central Bank, of six percent (6%) of total deposits (excluding inter-bank deposits). All remaining funds will be invested in a variety of ways to maximize investment earnings.
The investment portfolio will be managed by the Chief Financial Officer, or other officer appointed by the Board to act as Investment Officer, who will strive to invest with the judgment and care that prudent individuals would exercise in the execution of their own affairs, to maintain the safety of principal, maintain liquidity to meet cash flow needs and to provide competitive investment returns for the Bank.
From time to time investments will be managed through external programs, facilities and professionals. To constitute compliance these must be managed in a manner consistent with this policy.
2.1. Safety - investment policy
Safety of principal is the foremost objective of the investment policy. Investments will be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. The idea of safety is to mitigate credit risk, interest rate risk, currency risk and county risk.
2.1.1. Credit Risk - investment policy
The Bank will minimize credit risk, the risk of loss due to the failure of the security issuer or backer, by:
1. Pre qualifying the financial institutions, brokers/dealers, intermediaries, and advisors with which the Bank will do business.
2. Diversifying the portfolio so that potential losses on individual securities will be minimized.
2.1.2. Interest Rate Risk - investment policy
The Bank will minimize the risk that the market value of securities in the portfolio will fall due to changes in general interest rates, by:
1. Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity.
2. Investing operating funds primarily in shorter- term securities.
2.1.3. Currency Risk - investment policy
The Bank will minimize the risk of loss resulting from changes in exchange rates by holding the majority of its investments in EC Dollars and US Dollars.
In financial theory, financial obligations of governments are often referred to as "riskless" securities. However, although these obligations constitute the best risk, they have a residual risk for the financial institution holding them. This risk is referred to as the sovereign risk of that country. It is the risk of loss experienced by a financial institution due to changing social, economic, or political factors specific to one country and can range from social or economic deterioration through legal and regulatory harassment, to deep recession, political breakup of the country, or the increase in financial institution income taxes. All such events could reduce the Bank’s earnings or capital.
The Bank will minimize the risk of loss resulting from sovereign risk by strategically diversifying its portfolio across countries.
2.2. Liquidity - investment policy
The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This will be accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands. Furthermore, since all possible cash demands cannot be anticipated, the portfolio shall consist largely of securities with active secondary or resale markets. Negotiable securities may be sold prior to their maturity to provide liquid funds as needed for cash flow purposed.
2.3. Yield - investment policy
The investment portfolio shall be managed with the objective of attaining a competitive rate of return given the constraints of the aforementioned safety and liquidity objectives. The Asset/Liability Committee will periodically establish benchmark yields for various categories of the Bank’s investments. To ensure long-term objectives are met, securities shall not be sold prior to maturity with the following exceptions:
1. A security with declining credit may be sold early to minimize loss of principal.
2. Liquidity needs of the portfolio require that the security be sold.
The sample investment policy covers under the standards of care such things as prudence, ethics and conflicts of interest, delegation of authority, and Checks & Balances. Read more.
The investment transactions section details internal controls authorized Financial Dealers and Institutions, and eligible investment including Call Accounts and Certificates of Deposit (CDs), Repurchase Agreements (Repos), Commercial Paper, Treasury Bills (T-Bills), Bonds (Sovereign and Corporate), and Shares (Stocks). Additionally there are details relating to investment restrictions and prohibited transactions. Read more.
This section presents examples of portfolio diversification, maturity limitations, and portfolio management. Read more.
Following the primary objective of preservation of capital, investments shall be actively managed to take advantage of market opportunities. In so doing, negotiable securities may be sold prior to their maturity to provide liquid funds as needed for cash flow purposes, to enhance portfolio returns, or to restructure maturities to increase yield and/or reduce risk. In accordance with this investment policy assets may be sold at a loss only if it is felt that the sale of the security is in the best long-term interest of the Bank.
Portfolio Diversification - investment policy
The Chief Financial Officer shall prepare a monthly investment report that will provide an analysis of the status of the current investment portfolio and transactions made over the reporting period. It will be prepared in a manner to allow the Board to draw a comparison between the portfolio's total return and the established investment objectives and goals, and to ascertain whether investment activities during the reporting period have confirmed to the investment policy and appropriate risk levels. The report will include the following:
1. Listing of individual investments held at the end of the reporting period. 2. Listing of investment by maturity date. 3. Average weighted yield to maturity on investments as compared to applicable benchmarks. 4. Percentage of the total portfolio that each type of investment represents. 5. Listing of equity securities with values in excess of 10% of primary capital. 6. Summary of investments by class, currency, country and economic sector. 7. Realized and un-realized gains or losses resulting from appreciation or depreciation by calculating the market value of securities in accordance with International Accounting Standards (IAS) 39.
The accountant shall be responsible for recording all investment transactions and for securing all documents relative to such transactions. Securities purchased on the Eastern Caribbean Securities Exchange (ECSE) will be kept at the Eastern Caribbean Securities Registry or at the Eastern Caribbean Securities Depository and a confirmation of ownership will be mailed to the Bank. The Accountant will ensure this is received in reasonable time and filed. The Accountant will further ensure that all certificates for other investments are received in reasonable time, are accurately recorded and securely filed away. Also, the monthly interest accruals and quarterly market value adjustments will be the Accountant’s responsibility.
8.1 Exception to Investment Policy
Any investment currently held that does not meet the guidelines of this policy shall be exempt from the requirements of this policy. At maturity or liquidation, such monies shall be reinvested only as provided by this policy.
8.2 Revision of Investment Policy
The Chief Financial Officer shall review the investment policy annually and shall recommend all necessary changes to the Board for consideration and adoption. The data contained in the Annexes to this document may be updated by the Chief Financial Officer as necessary, provided that the changes in no way affect the substance of the policy.
8.3 Adoption of Investment Policy
This investment policy and any changes made during the annual reviews shall be adopted by resolution of the Board of Directors.
The following documents are attached to this investment policy:
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