What is the purpose of an investment policy?

An investment policy serves as a guiding framework that outlines the objectives, strategies, and investment criteria of an organization. Its primary purpose is to facilitate informed decision-making regarding investments and to provide a means for evaluating the performance of those investments over time. This framework helps ensure that investment decisions align with the organization's overall goals and risk tolerance.

By establishing clear guidelines, an investment policy aids financial managers in consistently applying these principles when selecting investments and monitoring their outcomes. It creates a structured approach that not only helps in achieving financial goals but also in adapting to market changes with a well-defined strategy for investment management.

In contrast, while other options may touch upon important aspects of financial management, they do not encapsulate the comprehensive purpose of an investment policy in the same way. For example, having a cushion for creditor protection or maximizing returns while maintaining liquidity is potentially a consideration within the broader investment strategy, but these are specific tactical goals rather than the overarching framework provided by an investment policy. Additionally, the aspect of matching investment maturity with projected cash needs can also be a strategic consideration; however, it specifically refers more to cash flow management rather than the overall guiding principles established by an investment policy.