A robust investment policy is one of the cornerstones of sound charity governance. For many small-to-mid UK charities, though, drafting one can feel daunting, especially when trustees are part-time volunteers without investment expertise in-house. The good news is that a clear written policy is precisely what allows trustees to delegate confidently to an FCA-authorised investment manager, knowing the boundaries are set and documented.
This guide covers everything your charity needs to know about investment policy best practices, from the legal framework to a free UK template.
In this article:
Why every charity needs an investment policy
Creating an investment policy is one of the most important steps a charity's trustees can take. A well-crafted policy helps your charity:
- Establish clear guidelines for decision-making. A defined investment policy sets out criteria for managing and investing the charity's funds. This clarity helps trustees, staff and investment managers make informed decisions aligned with the organisation's financial goals and risk tolerance.
- Mitigate risk. An investment policy outlines acceptable levels of risk and strategies to manage investment risks effectively. By diversifying investments and setting risk-management parameters, the policy helps protect the charity's assets against market fluctuations.
- Enhance sustainability. The policy establishes goals and strategies for achieving long-term financial sustainability. By focusing on prudent investment practices, your charity can generate income and grow its assets over time, ensuring continued support for its purposes.
- Improve transparency and accountability. A transparent investment policy promotes accountability to donors, stakeholders and the Charity Commission. It demonstrates responsible stewardship of donor funds and enhances your charity's reputation as a trustworthy organisation.
- Ensure compliance. The policy ensures compliance with legal obligations and trustees' fiduciary duties governing the management of charitable funds. By adhering to legal requirements and best practices, your charity avoids potential liabilities and maintains its standing with HMRC and its regulator.
- Build stakeholder confidence. A well-crafted investment policy instils confidence among trustees, donors and supporters. It provides assurance that the charity's financial resources are managed prudently, fostering long-term support and engagement.
- Enable strategic planning. The policy allows for periodic review and adaptation to changing economic conditions, investment opportunities and organisational priorities. This flexibility ensures your charity can adjust its investment strategies while remaining aligned with its purposes and financial objectives.
Key elements of a UK charity investment policy
UK charity investment policy is grounded in statute. The Charities Act 2011 (ss.4 and 4A) sets out the statutory power to invest and explicitly authorises trustees to make financial, mixed-motive and programme-related investments. The Trustee Act 2000 (s.1) imposes a statutory duty of care: trustees must exercise such care and skill as is reasonable, having regard to any special knowledge or experience they have. The Charity Commission's CC14 guidance (Investment of charitable funds) is the practical guide that sits on top of these statutes and shapes what a compliant written policy looks like. (Charity Commission for England and Wales)
NCVO also publishes widely trusted guidance on reserves and investment governance that many small UK charities find a helpful companion to CC14.
Align investments with your charitable purposes
Your charity's investment strategy should support, and never undermine, its charitable purposes. Aligning investment decisions with your purposes ensures that money is working towards the same goals your organisation exists to achieve. The Charities Act 2011 s.3 requires charities to operate for the public benefit, and trustees should be able to demonstrate that their investment approach is consistent with that duty.
Match investment return to your spending needs
- Financial objectives. Decide on clear goals for how much return you need from investments to support day-to-day operations, programmes and future plans. This ensures that the money you invest generates enough income to sustain and grow your charity's activities.
- Spending policy. Outline how you will use the returns from investments to cover expenses and fund initiatives. This policy sets guidelines for how much of the investment income can be spent each year while maintaining financial stability.
Agree the types of investment you will allow
UK charity law distinguishes between several categories of investment, each with a different legal basis:
- Financial investments (the default): investments made primarily for financial return, such as equities, gilts, corporate bonds, cash deposits and pooled funds.
- Mixed-motive investments: investments that are expected to generate a financial return and further the charity's purposes at the same time.
- Programme-related investments (PRIs): investments made primarily to further the charity's purposes, with financial return a secondary consideration, as authorised under Charities Act 2011 s.4A.
- Ethical and responsible investment screens: trustees may exclude investments that conflict with the charity's charitable purposes, provided the decision is reasoned and documented. The s.4A principle clarifies that trustees who exclude investments on grounds of conflict with their purposes are acting within their legal powers.
Permissible investments should be listed explicitly in the policy. Any categories of investment that are off-limits (for example, sectors that directly contradict the charity's purposes, or instruments considered too high-risk for the charity's reserves) should be stated clearly.
Set your asset allocation
- Asset allocation strategy. Plan how you will spread your investments across different types of assets. For UK charities the main asset classes are: equities (UK and international shares), gilts and corporate bonds, cash and cash equivalents (including current accounts and notice accounts, such as those offered by CAF Bank), property, and pooled charity funds. The last category includes common investment funds (CIFs) and common deposit funds (CDFs), which are vehicles regulated by the Charity Commission specifically for charitable investors. The CCLA and its COIF Charity Funds are among the most widely used pooled vehicles by UK charities of all sizes, though trustees should review their own circumstances before selecting any fund.
- Diversification. Spreading investments across various asset classes and sectors reduces the impact of market fluctuations on your overall portfolio. This strategy aims to maximise returns while minimising the risk of significant loss on any single investment.
Handle permanent endowment carefully
If your charity holds permanent endowment (capital that cannot be spent as income), specific rules apply under the Charities Act 2011. Trustees considering a total-return investment approach for permanent endowment funds must follow the statutory procedure, which allows investment of both capital and income with spending based on a total-return formula rather than income alone. Any change to the status of permanent endowment, or the adoption of a total-return approach, may require Charity Commission consent. Trustees should take professional advice before altering the treatment of permanent endowment. (Charity Commission for England and Wales)
Review your policy regularly
- Review schedule. Set up regular times to review and update your investment policy. Markets change, laws evolve and your charity's needs shift over time. Regular reviews ensure your investment strategy stays current and effective.
- Performance evaluation. Create a system to monitor how well your investments are performing against your stated goals. This helps you adjust your strategy if needed and ensures your money is working as effectively as possible to support your charity's purposes.
What to avoid in a charity investment policy
- Don't ignore ethical considerations. Do not invest in companies or industries that directly contradict your charity's purposes or values, such as tobacco, arms, or gambling (where these conflict with your purposes). Document the reasoning for any exclusion.
- Don't chase high-risk returns unnecessarily. Do not pursue high-risk investments solely for potentially high returns without considering the impact on financial stability and your trustees' duty of care under the Trustee Act 2000.
- Don't neglect legal compliance. Do not overlook the legal requirements governing charity investments. In England and Wales, trustees are bound by the Trustee Act 2000 statutory duty of care and the Charity Commission's CC14 guidance. In Scotland, the equivalent duties sit under the Charities and Trustee Investment (Scotland) Act 2005, overseen by OSCR. In Northern Ireland, the Charities Act (Northern Ireland) 2008 applies, with CCNI as regulator. Never treat 'UK' as a single jurisdiction.
- Don't lack transparency. Do not keep trustees, donors or stakeholders in the dark about investment decisions and performance. Transparency builds trust and accountability.
Cover the three UK regulators, not just one
UK charity law operates across three separate jurisdictions. CCEW (Charity Commission for England and Wales) covers charities registered in England and Wales. OSCR (Office of the Scottish Charity Regulator) covers Scottish charities, and a charity registered in England and Wales must also register with OSCR before operating in Scotland. CCNI (Charity Commission for Northern Ireland) covers Northern Ireland. A charity that fundraises or operates across borders must comply with each relevant regulator's requirements. An investment policy that acknowledges only one regulator may be insufficient.
Free download: charity investment policy template
The template below is structured for a UK registered charity. Adapt it for your organisation's size, asset base and governance arrangements.
1. Introduction
- Purpose. State the purpose of the investment policy and its importance in supporting the charity's purposes and long-term financial sustainability.
- Scope. Specify the scope of the policy, including which funds and assets it covers (for example, endowment funds, operating reserves, permanent endowment).
2. Mission and purpose alignment
- Purpose integration. Describe how investment strategies will align with the charity's purposes, values and long-term goals.
- Ethical considerations. Outline ethical guidelines for investments to ensure alignment with the charity's values and principles, including any responsible investment screens applied under Charities Act 2011 s.4A.
3. Investment objectives
- Financial goals. Define specific objectives for investment returns, income generation and asset growth.
- Spending needs. Establish goals for how investment income will support operational expenses, programme activities and future initiatives.
4. Asset allocation strategy
- Asset classes. Specify allowable asset classes (for example, equities, gilts and corporate bonds, cash deposits, common investment funds, property) and their target allocation percentages.
- Diversification. Describe strategies for diversifying investments to manage risk and optimise returns, including the use of pooled charity funds such as CIFs and CDFs where appropriate.
5. Investment guidelines
- Permissible investments. List the types of investment allowed (for example, pooled charity funds, direct equities, cash deposits at regulated institutions) and any conditions attached.
- Prohibited investments. Clearly state investments or practices that are not allowed, whether for ethical, legal or risk reasons.
6. Risk management
- Risk tolerance. Define the charity's tolerance for investment risks, reflecting the trustees' statutory duty of care under the Trustee Act 2000 s.1.
- Monitoring and reporting. Outline procedures for monitoring investment performance, assessing risk levels and reporting to trustees and, where required, to stakeholders.
7. Governance and oversight
- Responsibilities. Assign responsibilities for overseeing investment activities, including the roles of the full board of trustees, any finance and investment sub-committee with delegated authority (as provided for under CC14), and any FCA-authorised investment manager to whom investment management is delegated.
- Decision-making. Describe decision-making processes for investment selections, manager appointments and policy revisions.
8. Compliance and legal considerations
- Regulatory compliance. Ensure the policy reflects the legal requirements governing charity investments: the Charities Act 2011, the Trustee Act 2000, CC14 guidance from the Charity Commission (CCEW), and the equivalent duties under OSCR (Scotland) and CCNI (Northern Ireland) where applicable. Confirm with your accountant or FCA-authorised investment manager that investment income is being applied to charitable purposes so as to benefit from the applicable HMRC exemptions (your charity must hold a valid HMRC Charities Reference Number). For technical guidance on charity tax treatment, the Charity Tax Group is a reliable independent reference.
- Fundraising compliance. The Fundraising Regulator's Code of Fundraising Practice (effective 1 November 2025) governs how donated funds are raised and handled. Your investment policy should sit alongside a reserves policy, which the Charity Commission expects to see referenced in the Trustees' Annual Report and Accounts (TAR).
- Documentation. Maintain documentation of investment policies, decisions and compliance measures.
9. Review and revision
- Review schedule. Establish a schedule for reviewing and updating the investment policy to reflect changes in financial markets, organisational needs and regulatory requirements.
- Evaluation. Describe criteria and procedures for evaluating the effectiveness of the investment policy and making necessary revisions.
10. Communication and transparency
- Reporting. Specify requirements for reporting investment performance and policy compliance to trustees, donors and relevant regulators.
- Transparency. Promote transparency in communicating investment strategies, decisions and outcomes to foster trust and accountability.
Frequently asked questions
What is an investment policy for a charity?
charity investment policy is a written document that sets out how a charity's trustees will manage and invest the organisation's funds. It defines the charity's investment objectives, the types of investment permitted, the asset allocation strategy, risk tolerance, governance arrangements and review procedures. In the UK, the Charity Commission's CC14 guidance provides the framework for what a compliant investment policy should contain. The policy gives trustees, investment managers and stakeholders a clear, documented basis for all investment decisions.
What are charities allowed to invest in?
UK charities can invest in a range of asset classes, subject to their governing document and the Charities Act 2011. Common permissible investments include: equities (UK and international shares), gilts and corporate bonds, cash deposits (including notice accounts and deposit accounts at institutions such as CAF Bank), common investment funds (CIFs) and common deposit funds (CDFs) regulated by the Charity Commission, and pooled charity funds such as those offered by CCLA. Charities may also make mixed-motive investments and programme-related investments (PRIs) under Charities Act 2011 s.4A, where the primary purpose is to further the charity's purposes rather than to generate a financial return. Trustees must ensure that any investment is consistent with the charity's purposes and their statutory duty of care under the Trustee Act 2000.
Do charities need an investment policy?
While there is no single statute that requires every charity to have a written investment policy, the Charity Commission's CC14 guidance effectively expects any charity with meaningful investments to have one in place. Trustees are personally accountable under charity law for the management of charitable funds, and the Trustee Act 2000 imposes a statutory duty of care on all trustees when exercising investment functions. A written policy is the clearest evidence that trustees have discharged that duty. Without one, trustees may find it difficult to demonstrate that investment decisions were made prudently and in accordance with the charity's purposes. Trustees can also be held personally liable for a breach of duty of care, making a documented policy an important safeguard. (Charity Commission for England and Wales)
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