{"id":2917,"date":"2019-09-01T11:00:00","date_gmt":"2019-09-01T11:00:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=2917"},"modified":"2026-03-12T07:42:38","modified_gmt":"2026-03-12T07:42:38","slug":"components-of-the-ips","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/components-of-the-ips\/","title":{"rendered":"Components of the IPS"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Basics of Portfolio Planning and Construction (2024\/2025 Level I CFA\u00ae Exam \u2013 PM \u2013 Module 4)\",\n  \"description\": \"This video lesson covers Portfolio Planning and Construction, explaining the importance of a written Investment Policy Statement (IPS), its major components, and how to develop risk and return objectives. It also details investment constraints, asset allocation, portfolio construction principles, and integrating ESG considerations into portfolio management.\",\n  \"uploadDate\": \"2022-07-06T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/hh4LeaTMl5Q\/maxresdefault.jpg\",\n  \"contentUrl\": \"https:\/\/www.youtube.com\/watch?v=hh4LeaTMl5Q\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/hh4LeaTMl5Q\",\n  \"duration\": \"PT48M55S\"\n}\n<\/script>\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"Which section of the investment policy statement is likely to contain information on leverage limits, maximum derivative exposure, and the exclusion of stocks from a particular industry?\",\n    \"text\": \"Which section of the investment policy statement is likely to contain information on leverage limits, maximum derivative exposure, and the exclusion of stocks from a particular industry?\\n\\nA. The procedures section.\\n\\nB. The investment guidelines.\\n\\nC. The evaluation and review section.\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is B. The investment guidelines section contains information on how the investment policy should be executed and includes the permissibility and exclusion of assets.\"\n    }\n  }\n}\n<\/script>\n\n\n\n<iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/hh4LeaTMl5Q?si=fiBoM5oZqFMOwfrE\" title=\"YouTube video player\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n\n\n<p>There is no standard format to the Investment Policy Statement, but most conform to a basic structure. The two key sections are the investment objectives and the investment constraints.<\/p>\n<h2><strong>Typical IPS Structure<\/strong><\/h2>\n<p>The IPS document usually follows the structure below:<\/p>\n<ul>\n<li>Introduction\n<ul>\n<li>Description of the client<\/li>\n<\/ul>\n<\/li>\n<li>Statement of Purpose\n<ul>\n<li>Purpose of the IPS<\/li>\n<\/ul>\n<\/li>\n<li>Statement of Duties and Responsibilities\n<ul>\n<li>Duties and responsibilities of all parties &#8211; client, advisor, custodians<\/li>\n<\/ul>\n<\/li>\n<li>Procedures\n<ul>\n<li>The steps that will be undertaken to keep the IPS updated and procedures to be followed in response\u00a0 to various contingencies<\/li>\n<\/ul>\n<\/li>\n<li>Investment Objectives\n<ul>\n<li>The client&#8217;s investment objectives<\/li>\n<\/ul>\n<\/li>\n<li>Investment Constraints\n<ul>\n<li>The client&#8217;s investment constraints<\/li>\n<\/ul>\n<\/li>\n<li>Investment Guidelines\n<ul>\n<li>Information on how the investment policy should be executed and includes the permissibility and exclusion of assets<\/li>\n<\/ul>\n<\/li>\n<li>Evaluation and Review\n<ul>\n<li>Guidance on obtaining feedback for investment results<\/li>\n<\/ul>\n<\/li>\n<li>Appendices\n<ul>\n<li>Strategic asset allocation (SAA) \u2013 also known as the policy portfolio, provides the baseline portfolio allocation<\/li>\n<li>Rebalancing policy<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<blockquote>\n<h2><strong>Question<\/strong><\/h2>\n<p>Which section of the investment policy statement is likely to contain information on leverage limits, maximum derivative exposure, and the exclusion of stocks from a particular industry?<\/p>\n<p>A. The procedures section.<\/p>\n<p>B. The investment guidelines.<\/p>\n<p>C. The evaluation and review section.<\/p>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is <strong>B<\/strong>.<\/p>\n<p>The investment guidelines section contains information on how the investment policy should be executed and includes the permissibility and exclusion of assets.<\/p>\n<\/blockquote>\n<div style=\"text-align: center; margin: 30px 0;\"><a style=\"display: inline-flex; align-items: center; justify-content: center; padding: 12px 26px; border-radius: 9999px; background: #1e5bd8; color: #ffffff; font-weight: bold; text-decoration: none;\" href=\"https:\/\/analystprep.com\/free-trial\/\" target=\"_blank\" rel=\"noopener noreferrer\"> Start Free Trial \u2192 <\/a>\n<p style=\"margin-top: 12px; font-size: 16px; line-height: 1.5;\">Master CFA Level I portfolio management topics with exam-style practice on IPS structure, investment objectives, client constraints, and portfolio planning decisions.<\/p>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>There is no standard format to the Investment Policy Statement, but most conform to a basic structure. The two key sections are the investment objectives and the investment constraints. Typical IPS Structure The IPS document usually follows the structure below:&#8230;<\/p>\n","protected":false},"author":18,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7],"tags":[],"class_list":["post-2917","post","type-post","status-publish","format-standard","hentry","category-portfolio-management","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Components of the Investment Policy Statement | CFA Level 1<\/title>\n<meta name=\"description\" content=\"An IPS outlines investment objectives and constraints, serving as a framework for portfolio decisions. 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