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Investing charity funds

12 May 2011

Investing charity funds

Most charities do not apply all of the capital that they receive to good works. They need to make the capital work for them by providing both growth and income. This enables the charity to continue with its purpose for many years to come and apply its growing income to the service of its beneficiaries.

It is quite common, particularly for smaller charities, to see the funds accumulated held in a low interest deposit account or an investment which is not really performing. The reasons for this could be that the trustees are unaware of the alternative options, or have not managed to get round to dealing with it due to the commitments of the charitable cause. Whatever the reason, if you are a trustee of a charity, with funds built up, you should benefit from taking advice on the appropriate investment of the funds.

Charity trustees are subject to the duties and responsibilities of the Trustee Act 2000 to make proper decisions about the investment of the trust fund. Like ordinary trusts, every charity has different requirements and objectives, which is why it is so important that guidance is provided on how best to achieve these.

Charity trustees need to consider their investment strategy very carefully and ensure that they are clear about what they want the funds to do. It may be that they have specific expenditure planned in the future and they want to plan for this, or they simply want the funds to grow steadily in value and provide a reasonable income so that distributions can be made.

Key issues to consider are the timescale of the investment strategy, whether short, medium or long term. This will be a factor in deciding the most appropriate types of investment to include.
 
Inflation is also important as the value of the funds held could effectively reduce if they are invested in assets that do not grow to at least keep up with inflation. This could be a problem on cash deposits where interest rates are currently so low that over time the interest is nowhere near the rate of inflation leaving trustees with less buying power in the future.

There are other factors to take into account when making investment decisions, however it is clear that trustees should be seeking advice to ensure that they are aware of the options available and to make an informed decision. Putting together a sensible financial plan could make all the difference to the future of the charity whilst ensuring that trustees duties are met.

For further information contact Ruth Dolan on 01227 763939

Download Charities Update Spring 2011

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