An Investment Policy Statement (IPS) is a written document that outlines how an investment portfolio should be managed to meet specific financial goals. It defines the what, why, and how of investment strategy, helping both investors and advisors stay aligned, accountable, and disciplined.
While often overlooked by individual investors, the IPS is a critical tool used by institutional investors, wealth managers, and financial planners for a reason—it brings structure, clarity, and long-term focus to the investment process.
An IPS begins by clearly stating your financial goals—whether it’s building retirement wealth, preserving capital, or funding a future expense like a child’s education. This goal-setting process ensures that every investment decision serves a specific purpose.
Example: “Achieve a 9% average annual return over 10 years while maintaining moderate risk.”
Everyone’s risk tolerance is different. An IPS documents your willingness and ability to take risk—factoring in age, income, market experience, and time horizon.
By defining acceptable risk levels, the IPS prevents emotionally-driven decisions in volatile markets and keeps the portfolio aligned with your personal comfort zone.
One of the IPS’s most valuable roles is to define how your money should be allocated across various asset classes (e.g., equities, bonds, cash, real estate).
This allocation forms the core investment strategy and is crucial to balancing risk and return over time.
Example Allocation: 60% Equity | 30% Debt | 10% Alternatives
Without an IPS, investors often chase performance, act emotionally, or drift from their strategy. A well-written IPS acts as a decision-making anchor, encouraging a rules-based approach—especially during market highs or lows.
It ensures you don’t panic during a crash or overextend during a boom.
An IPS outlines how investment performance will be measured, using benchmarks like the Nifty 50, Sensex, or S&P 500, depending on portfolio exposure.
It also defines:
This makes reviews more objective and less reactive.
If you’re working with a financial advisor, wealth manager, or family office, the IPS serves as a governance tool. It defines:
This protects the investor and ensures that advice remains aligned with documented priorities.
For institutions, trusts, and family offices, an IPS provides evidence of fiduciary responsibility. It proves that investment decisions were made prudently and with a consistent process—helping in audits, legal compliance, and regulatory reviews.
Markets change. Life changes. But your IPS keeps your portfolio focused on your long-term objectives, not short-term distractions.
It can be updated periodically to reflect life events (like retirement, inheritance, or a liquidity need) without having to re-define your entire investment approach.
An Investment Policy Statement is not just a document—it’s a commitment to thoughtful, intentional investing. It turns broad goals into specific strategy, and emotions into actions based on logic and planning.
Whether you’re an individual investor or managing multi-generational wealth, creating an IPS is one of the most important steps toward long-term financial success.
1. Who needs an Investment Policy Statement (IPS)?
Ans: An IPS is essential for anyone managing a portfolio—whether you’re an individual investor, a family office, a retirement fund, or a nonprofit. It’s especially important if you’re working with an advisor or managing investments with long-term goals.
2. Is an IPS legally required?
Ans: For individual investors, an IPS is not legally required. However, for fiduciaries like trustees, pension funds, and institutions, having an IPS is considered best practice and can help meet legal and regulatory obligations.
3. How often should I review or update my IPS?
Ans: Ideally, you should review your IPS annually or when there are major life changes (e.g., retirement, inheritance, business sale) or shifts in market conditions. The document should evolve as your financial goals evolve.
4. Can I write my own IPS?
Ans: Yes, you can. However, a professionally crafted IPS—developed with a qualified advisor or firm like Rits Capital—ensures your strategy is aligned with both financial best practices and your personal goals.
5. What should an IPS include?
Ans: A comprehensive IPS typically includes:
6. How does an IPS help during market volatility?
Ans: An IPS acts as a stabilizer. It keeps your focus on long-term goals and discourages impulsive decisions during market highs and lows. It also provides pre-defined rebalancing rules to help maintain discipline.