The mandate of a collective investment vehicle is a statement of its aims, the limits within which it is supposed to invest, and the investment policy it should follow.
A fund (or portfolio) will typically define:
- the aim of the fund (e.g., to generate dividend income or long term growth)
- the type of strategy it will follow (which will tend to follow from the above)
- what regions it will invest in (UK, Europe, emerging markets, etc.)
- what sectors it will invest in.
- what types of securities it will invest in (equities, bonds, convertibles, derivatives, etc.)
- whether the fund will short sell and whether it will be hedged
- whether it will be geared and to what extent
- a benchmark index that the fund aims to beat (or match if it is a tracker fund),
- the maximum error in tracking the benchmark.
Fund mandates are set by the fund management company, but publicised so that investors can choose a fund that suits their requirements.
There are also legal limits on how some types of investment vehicle can invest.