INVESTMENT MANDATE

WHAT IS AN INVESTMENT MANDATE?

If you are looking forward to investing your funds through an ETF, mutual fund or other form of fund which is managed, consider that fund’s investment mandate. Every fund has a set of objectives and rules which are used in the management of a specific fund or portfolio. Investment mandates are a significant piece of governance for managed investments because they put shareholders and fund managers on the same page. 

There are various types of investment mandates and differing approaches to capital management. However, most mandates provide clear instruction for the approach of investing. It is a framework for transparency and helps to set expectations. Here is what you need to know about investment mandates and its role in determining guiding principles of investments. 

INVESTMENT MANDATE INCLUSIONS

Investment mandates are more than a rule which a fund needs to follow. Many times these include quantifiable standards which are to be met by funds. Investment managers get held accountable for the fund’s performance within the context of the criteria outlined in it. For instance, some of the more specific instructions laid out in a mandate include the following:

• Fund goals and priorities
• Acceptable levels of risk
• Performance benchmarks
• Asset management rules
• Investment strategy and thesis

These variables all culminate in a mandate that sets the fund tone. Investment managers know the criteria through which they are allowed to operate and investors can fix clear expectations for what they are expecting.

TYPES OF INVESTMENT MANDATES 

1. Low turnover mandate:

This mandate puts a cap on the amount of a portfolio that is sold every year to reduce the turnover. This might also restrict how much of the total fund value managers can trade in a given quarter or year for that matter. 

2. Capitalisation mandate:

A small cap mandate might encourage managers to identify upcoming companies with significant revenue runways. Conversely a large cap mandate might encourage investment in stable companies within different sectors.

3. Passive income mandate:

As the name suggests, this type of mandate appropriates a strategy of dividend or a portfolio allocation that skews toward passive income. It might specify a DRIP allocation or dictate investment in REITs across dividend payers.

4. ESG : Environment, Social and Governance:

These mandates encourage fund managers to invest in ethical and moral companies such as those with sustainable initiatives while avoiding companies that are actively involved in certain practises. 

5. Globalisation mandate:

These mandates focus on the countries the fund can invest in and how those will take shape. This might mean tapping into emerging markets outside the country or creating a well allocated portfolio across selection of 1st world nations. 

DO YOU NEED AN INVESTMENT MANDATE?

ETFs, Mutual funds and other pooled assets always have mandates in their system. These not only guide how the accounts are to be run but also let investors know how the money will be used which can assist them to decide where to put the capital. 

If a finance manager is in charge of the fund or account, they need some rules to do their job. Once they see how investors intend to use the funds, time frame for investing, and level of risk tolerance, then they will be able to guide you towards the right choices.

Even if you are going to invest on your own without the help of an advisor, drawing up an investment mandate can help you manage your funds and make the right decision. Investing can be a bit emotional and we can not predict where the market will turn. Setting out a framework for where and how you will invest, when to trade and what goals you are trying to reach will assist us to make a smart choice.