Prudent Person Rule

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A standard that requires that a fiduciary entrusted with funds for investment may invest such funds only insecuritiesthat any reasonable individual interested in receiving a good return of income while preserving his or her capital would purchase.

Historically known as the prudent or reasonable man rule, this standard does not mandate an individual to possess exceptional or uncanny investment skill. It requires only that a fiduciary exercise discretion and average intelligence in making investments that would be generally acceptable as sound.