Nonprofit Accounting
Nonprofit Management
Nonprofit Investment Policy Statement: Template, UPMIFA Rules and Board Oversight
Last updated: October 16, 2026 · Independent guide · We do not sell rankings or coverage.
A nonprofit investment policy is a board-approved document that sets your return and risk objectives, allocation ranges, prohibited investments, spending rule and reporting duties. For endowments and other institutional funds, it is also the main evidence that the board met the prudence standard in the Uniform Prudent Management of Institutional Funds Act (UPMIFA). Below is copyable policy language, then guidance on the legal standard, board roles and how to record investment returns.
How to use this template
Copy the model language into your own document and replace every bracketed item. Keep one policy with a schedule per pool (operating reserve, board-designated reserve, endowment) rather than separate documents. Have counsel check section 2 against your state’s UPMIFA statute, and have the full board approve the final text and minute the vote.
Investment policy statement template
| Section | Model language (copy and edit) | What you fill in |
|---|---|---|
| 1. Purpose and scope | “This policy governs assets of [Organization] in the Operating Reserve, Board-Designated Reserve and Endowment Pool (the Funds), but not operating cash accounts.” | Pool names; excluded accounts. |
| 2. Governing law and standard of care | “The Funds will be managed in good faith and with the care an ordinarily prudent person in a like position would exercise under similar circumstances, consistent with the [State] Uniform Prudent Management of Institutional Funds Act and the terms of each gift instrument. Donor restrictions in a gift instrument override this policy.” | State statute citation. |
| 3. Roles and responsibilities | “The Board approves this policy and the spending rate. The [Investment] Committee implements it, selects and monitors advisers, and reports to the Board [quarterly]. The [CFO] records transactions and reconciles custodian statements monthly. The adviser acts within a written agreement and this policy. Members disclose conflicts and abstain on related votes.” | Committee name; reporting frequency; adviser discretion. |
| 4. Investment objectives | “Endowment Pool: a total return, net of fees, of at least spending plus [CPI-U] over rolling [5]-year periods. Operating Reserve: preserve principal. Board-Designated Reserve: preserve principal over [3] years with modest growth.” | Target per pool; inflation measure. |
| 5. Time horizon and liquidity | “At least [10]% of the Endowment Pool will be redeemable within [30] days. The Operating Reserve will be available within [5] business days.” | Liquidity floors. |
| 6. Asset allocation | “Each Fund will stay within the ranges in Schedule A. The Committee may move targets within ranges; changing ranges requires Board approval.” | Schedule A (below). |
| 7. Rebalancing | “Staff review allocations monthly. When an asset class leaves its range, the Committee will direct rebalancing within [60] days.” | Rebalancing deadline. |
| 8. Permitted investments | “U.S. Treasury and agency securities; FDIC-insured deposits; money market funds; investment-grade bonds; diversified equity funds and ETFs; other pooled funds the Committee approves in writing.” | Credit quality floor. |
| 9. Prohibited investments | “Without Board approval: margin and short sales; private placements; direct real estate; cryptocurrency; securities of companies in which an officer or director has a material interest; any single issuer above [5]% of a Fund, excluding Treasuries and diversified funds; [mission exclusions]. Gifted securities are sold within [5] business days unless the gift instrument or the Committee says otherwise.” | Concentration limit; exclusions; sale window matching your gift acceptance policy. |
| 10. Spending policy | “Each year the Board will appropriate [4.5]% of each endowment fund’s average fair value over the [12] preceding quarter-ends (or its life, if shorter), after considering and minuting the factors in [statute section].” | Spending rate; averaging period. |
| 11. Underwater funds | “When a fund’s fair value is below its original gift value, the Board may appropriate [the full rate / X% / nothing] after documenting why that is prudent.” | Your rule (disclosed in audited statements). |
| 12. Manager selection and monitoring | “Managers are compared quarterly with Schedule B benchmarks, net of fees. A manager trailing by more than [X] points over [3] years goes on watch.” | Benchmarks; watch trigger. |
| 13. Reporting | “Within [30] days of quarter-end, staff report: market value by Fund and asset class; allocation versus ranges; net returns for the quarter, year to date, 1, 3 and 5 years against benchmarks; fees; withdrawals; policy exceptions.” | Report deadline. |
| 14. Review and approval | “The Committee reviews this policy at least annually. Approved by the Board on [date], resolution [number].” | Approval date. |
Schedule A: allocation ranges (illustration only, not a recommendation). Set your own ranges from your liquidity needs, spending rate and risk tolerance.
| Asset class | Operating Reserve | Board-Designated Reserve | Endowment Pool (target, range) |
|---|---|---|---|
| Cash and money market | 50% to 100% | 10% to 30% | 2% (0% to 10%) |
| U.S. Treasuries and investment-grade bonds | 0% to 50% (maturities under 2 years) | 40% to 70% | 28% (20% to 40%) |
| U.S. equity | 0% | 10% to 30% | 45% (35% to 55%) |
| Non-U.S. equity | 0% | 0% to 10% | 20% (10% to 30%) |
| Real assets or alternatives | 0% | 0% | 5% (0% to 10%) |
Guidance on each part of the template
Governing law: the UPMIFA prudence standard
UPMIFA is enacted state by state, so your state’s statute is the binding text. Maine’s typical version requires each person managing an institutional fund to act “in good faith and with the care an ordinarily prudent person in a like position would exercise under similar circumstances,” to incur only costs “appropriate and reasonable in relation to the assets,” and to make “a reasonable effort to verify facts relevant to the management and investment of the fund” (13 M.R.S. §5103, data extracted October 5, 2026).
It lists eight factors to consider if relevant: economic conditions, inflation or deflation, tax consequences, each investment’s role in the portfolio, expected total return, other resources, the need to distribute and preserve capital, and any asset’s special relationship to the charitable purpose. It also requires diversification unless special circumstances justify otherwise, and a timely decision on keeping or selling gifted property.
Roles: what the board keeps and what it delegates
UPMIFA lets a board delegate investment management to an external agent, but the duty of care moves to how the board selects the agent, sets “the scope and terms of the delegation,” and periodically reviews “the agent’s actions in order to monitor the agent’s performance” (13 M.R.S. §5105, data extracted October 20, 2025).
| Decision or task | Board | Investment or finance committee | CFO or treasurer, and adviser |
|---|---|---|---|
| Approve policy, allocation ranges, spending rate | Approves | Recommends | Provides analysis |
| Hire or replace adviser and managers | Informed or approves (per bylaws) | Decides | Runs due diligence |
| Rebalance within ranges | Informed | Directs | Executes |
| Record returns, reconcile custodian statements | None | Reviews | CFO owns; adviser supplies data |
| Quarterly performance report | Receives summary | Reviews in detail | Prepares |
Objectives and allocation
Write return objectives net of fees and relative to spending plus inflation, which preserves purchasing power. For context, the 2025 NACUBO-Commonfund Study of Endowments covered 657 U.S. colleges, universities and affiliated foundations and reported an average fiscal 2025 return of 10.9% and an average effective spending rate of 4.9%, up from 4.8% in fiscal 2024 (Mercer summary, source note dated February 2026; Mercer sells investment consulting). Treat those figures as context, not a target.
Spending rule
Before appropriating from a donor-restricted endowment, UPMIFA requires the institution to consider seven factors if relevant: the duration and preservation of the fund, the purposes of the institution and the fund, general economic conditions, inflation or deflation, expected total return, other resources and the institution’s investment policy (13 M.R.S. §5104, data extracted October 20, 2025). In states that adopted the optional provision, as Maine did, appropriating more than 7% of a fund’s fair value, averaged over at least the three preceding years using values set at least quarterly, “creates a rebuttable presumption of imprudence.” Minute the board’s consideration of each factor.
Illustration: twelve quarter-end values averaging $2,400,000 at a 4.5% rate give a $108,000 appropriation.
Prohibited investments
Keep the prohibited list short and enforceable. Private foundations face an additional federal rule: under section 4944, an investment that jeopardizes the foundation’s exempt purposes triggers an excise tax of 10% of the amount involved for each year in the taxable period, and a separate 10% tax on managers who participate knowingly, willfully and without reasonable cause, with the managers’ initial tax capped at $10,000 per investment (IRS, Taxes on jeopardizing investments, updated June 28, 2026).
How to record and report investment returns
Under ASU 2016-14, issued August 18, 2016, nonprofits present investment return net of external and direct internal investment expenses and no longer disclose the netted expenses (Deloitte Heads Up, September 12, 2016; EisnerAmper, October 2, 2017). Interest, dividends and realized and unrealized gains flow into one net investment return line on the statement of activities, split between net assets with and without donor restrictions.
In a pooled endowment, allocate each period’s return to funds by units or average balance. Illustration: a pool earns $50,000 net of fees in a quarter, 70% of the pool is donor-restricted, and the board appropriates $27,000 from donor-restricted funds.
| Account | Debit | Credit | Note |
|---|---|---|---|
| Investments, endowment pool | $50,000 | Custodian value change, net of fees | |
| Net investment return, with donor restrictions | $35,000 | 70% share | |
| Net investment return, without donor restrictions | $15,000 | Board-designated share | |
| Net assets released from restriction, with donor restrictions | $27,000 | Appropriation | |
| Net assets released from restriction, without donor restrictions | $27,000 | Same amount | |
| Cash, operating | $27,000 | Withdrawal | |
| Investments, endowment pool | $27,000 | Pool reduced |
Releases work like any purpose restriction; see our guide to restricted funds accounting. If a fund is underwater, ASU 2016-14 requires you to disclose your policy and any actions on appropriating from underwater funds, their aggregate fair value, the aggregate original gift amounts to be maintained and the aggregate deficiency, which is classified in net assets with donor restrictions (Deloitte, September 12, 2016).
On the Form 990, the same roll-forward appears in Schedule D, Part V: beginning balance, contributions, net investment earnings, gains and losses, grants or scholarships, facilities and programs, administrative expenses and ending balance, plus the percentage held as board-designated, permanent and term endowment (IRS Instructions for Schedule D, revised December 2024, page reviewed April 30, 2026). Our Form 990 Schedule D guide walks through each line.
Common mistakes
- One allocation for every pool. An operating reserve invested like an endowment can lose value exactly when you need to draw on it.
- Spending set by budget need. Appropriating whatever closes the budget gap, without the documented UPMIFA factors, is hard to defend as prudent, and above 7% it triggers the presumption of imprudence in states with that provision.
- Returns reported gross of fees. If the committee compares managers on gross returns while GAAP and the Form 990 use net figures, the reports will not tie to the financial statements.
- No reconciliation to the custodian. The general ledger balance should agree with the custodian statement every month, with unit or balance allocations to each fund.
When to move from a spreadsheet to software
A spreadsheet works for a reserve account or a few endowment funds reconciled monthly. A pooled endowment with many named funds, each with its own gift value, appropriation and donor report, outgrows it.
Dedicated tools handle unitization. Balance by EverTrue (Fundriver at NC State) covers unitization, allocation, spending, reconciliation and reporting; EverTrue does not publish pricing, and its page does not describe general ledger integration (EverTrue, page modified October 14, 2026; NC State, no date shown). The summarized entries then post to a fund accounting system such as Sage Intacct or Blackbaud Financial Edge NXT. Our comparison of nonprofit accounting software covers those general ledger options.
How we researched this
We reviewed the adviser, CPA-firm and board-software pages that rank for this search; none offered copyable policy language or accounting entries. UPMIFA text comes from the Maine Revised Statutes as a representative enactment, reporting rules from the IRS Schedule D instructions and ASU 2016-14 summaries by Deloitte and EisnerAmper. All rules were checked on October 16, 2026. Allocation ranges and journal entries are illustrations.
Related guides
- Endowment Accounting: UPMIFA, Spending and Journal Entries
- Board-Designated Funds: Definition and Reporting
- Split-Interest Agreement Accounting: ASC 958-30 Entries
Frequently asked questions
Does a small nonprofit really need an investment policy?
If you hold anything beyond operating cash, yes. Your state’s UPMIFA prudence standard applies to the institutional funds it covers, and a short written policy is the simplest evidence that the board considered return, risk and liquidity.
What is a typical nonprofit endowment spending rate?
The 2025 NACUBO-Commonfund study reported an average effective spending rate of 4.9% for fiscal 2025 among 657 higher education institutions and foundations. States that adopted UPMIFA’s optional provision treat spending above 7% as presumptively imprudent.
Can we spend from an underwater endowment?
UPMIFA does not ban it; it requires the appropriation to be prudent after considering the statutory factors, unless the gift instrument says otherwise. Your policy should state the rule you follow. Auditors will disclose that policy, the aggregate fair value, original gift amounts and deficiency in your financial statements.
How do we report investment fees?
Under ASU 2016-14, external and direct internal investment expenses are netted against investment return, and you do not have to disclose the netted amount. For your committee, still report fees separately so members can judge whether costs are “appropriate and reasonable” as UPMIFA requires.
Sources
- Maine Revised Statutes, Title 13, §5103, Standard of conduct in managing and investing institutional fund (data extracted October 5, 2026)
- Maine Revised Statutes, Title 13, §5104, Appropriation for expenditure or accumulation of endowment fund; rules of construction (data extracted October 20, 2025)
- Maine Revised Statutes, Title 13, §5105, Delegation of management and investment functions (data extracted October 20, 2025)
- IRS, Instructions for Schedule D (Form 990) (revised December 2024; page reviewed April 30, 2026)
- IRS, Taxes on jeopardizing investments (updated June 28, 2026)
- Deloitte, Heads Up: FASB overhauls guidance on presentation of financial statements for not-for-profit entities (September 12, 2016)
- EisnerAmper, Implementation considerations under FASB ASU 2016-14 (October 2, 2017)
- Mercer, 2025 NACUBO-Commonfund Study of Endowments summary (source note dated February 2026; Mercer sells investment consulting)
- EverTrue, Balance endowment accounting software (page modified October 14, 2026; vendor page)
- NC State University, Fundriver reporting tool (no date shown)
Sherman Hsieh
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