Question

What are the main features of the Investor Policy Statement (IPS)?

The return objective in the IPS can be specified as ‘Capital Appreciation’ or ‘Capital Preservation’. Explain the individual’s risk preferences & risk objectives that each type of the return objective would be suitable for. Also explain what kind of assets each type of the return objective would invest in.

Answer 1

Main features of investment policy statement-

A. investment policy statement is a document which will be drafted between the portfolio manager and the client that will be outlining various rules which are followed by the manager.

B. investment policy statement will also be underlining the general investment goals and objective of the client and describing the strategies that the manager should be employed to meet these objectives.

C. investment policy statement will also be considering information regarding asset allocation this tolerance as well as Liquidity.

D. Investment policy statement will be considering in order to generate understanding of how the market will be working and familiarity of those investment principle and practices.

E. Investment policy statement will be protecting the interest of the client and increasing the awareness of the manager.

Return objective in investment policy statement can be either capital appreciation which will be focusing upon appreciation of the overall capital by returning of dividend and returning of increase in share but sometime client will be trying to preserve their capital and they do not want to lose their capital.

individual risk preference and risk objective would be defined as per their risk preference and risk aversion so that they will be trying to ascertain their risk aversion and difference in advance and they will be trying to generate their objective of higher return or lower return according to the higher risk or lower risk.

equities will be providing higher return and higher risk whereas bonds will be providing with lower return and lower risk so there will be risk and return defined according to the risk aversion of the investor.