Any investor, whether a newbie or someone who is already into the journey, needs to look at not just their options but also the kind of assets they have. An investor may wish to invest in mutual funds, for instance. So, how should one’s assets be invested? What set of guidelines or frameworks should a fund manager base their decision on?
The answer to these questions is an investment mandate. It is a blueprint or a set of instructions that an investor gives to a fund manager or a wealth manager to help them manage the investor’s wealth. It is the set of instructions an investment or wealth manager uses to manage an investor’s portfolio of assets.
If an investor takes Rs 3,00,000 to a wealth manager or a fund manager and tells them to grow their wealth or invest, the manager may not have a clear idea of what to do with the money without any guidelines about the purpose, goal or risk profile of the investor.
Instead, if an investor’s goal is to use it for their child’s foreign education ten years from now, it becomes a long-term goal, and the investment mandate is decided on this purpose and risk profile of the investor. Similarly, if an investor’s goal is to double their money in the quickest time possible, then the investment manager may employ a different strategy. No two people have the same mandate for their investments; some may be interested in preserving capital while others may be keen on growing their wealth in quick time.
Additional Read: Five reasons why your 20s are the best time to start investing
What will an investment mandate look like?
Typically, an investment mandate has a list of goals and priorities of the investor
It will also have the levels of risk the investor wishes to or can afford to take.
A mandate will in some cases have what kind of funds need to be avoided or included. An investment mandate is often drawn up by a financial planner or an expert a common individual investor seeks out.
Why do you need an investment mandate?
It is not just the private investor who uses an investment mandate. Fund managers also use the same. Typically, mutual funds, index funds or exchange-traded funds all have investment mandates. An investment mandate in a fund/pooled asset scenario allows investors to understand how their wealth will be used. An asset management company typically (AMC) has several mutual funds, each with its own investment mandate that tells the investor what kind of scheme they are getting into. An investor picks the one that aligns with their goals and purpose.
Having an investment mandate helps planners or financial advisors in charge of an investor’s accounts to guide them towards the right investment choices. It helps advisors make informed decisions based on the investors’ risk tolerance levels. Anyone investing on their own should also create a mandate for themselves so they can manage their money and take the right decisions.
Additional Read: Which Investment Option Is Best For The Risk Averse Investor?
Want to create your own mandate or look at the investment mandates of funds before you pick the right option? The Moneyfy app from Tata Capital offers easy investment options and advice for both beginners and those already investing. Features such as mutual fund scanner, listings, fund comparisons and goal-based investment help are crafted to help the individual investor make informed decisions.