Reading a Key Information Document
Every investment fund offered to private investors in the European Union comes with a Key Information Document, or KID: at most three printed pages, with the same headings in the same order for every product. Read properly, it answers the questions that matter before you invest: what you are buying, how much you could lose, what it costs and how long you are expected to stay. This explainer walks through the document section by section and shows what to look for in each.
What a KID is and why it exists
The Key Information Document is a standardised summary that the maker of an investment product, called the manufacturer, must publish before the product is made available to retail investors in the EU. It is required by the EU regulation on packaged retail and insurance-based investment products, known as PRIIPs, which has applied since January 2018. Since 1 January 2023 it has also replaced the older two-page Key Investor Information Document (KIID) for UCITS funds, so almost every fund on sale to private investors in the EU now comes with one.
Three features make the KID useful:
- It is short. No more than three sides of A4 paper when printed.
- It is standardised. Every KID uses the same headings in the same order, calculates risk and costs with the same prescribed methods and uses the same example investment of EUR 10,000, so two products can be compared line by line.
- It is not marketing. The law requires it to be accurate, fair, clear and not misleading, and it says so on its first page.
Your bank, broker or adviser must give you the KID free of charge and in good time before you commit to invest. The manufacturer has to review it at least once every twelve months and revise it whenever the information changes significantly, so always check the date on the first page.
The layout at a glance
The sections always appear in this order. Each one answers a single question.
| Section | The question it answers | What to look for |
|---|---|---|
| Purpose and product | What is this document, and who makes the product? | The manufacturer, its supervisor, the identifier of the share class and the date of the document. |
| Comprehension alert | Is the product complicated? | Shown only for products that are not simple. If it is there, make sure you understand how the product works. |
| What is this product? | What am I buying, for how long and for whom? | The type, the term, the objectives and the investor the product is intended for. |
| What are the risks and what could I get in return? | How much could I lose, and what might I get back? | The 1 to 7 risk indicator, the recommended holding period and the four performance scenarios. |
| What happens if the manufacturer is unable to pay out? | What if the company behind the product fails? | Whether any compensation or guarantee scheme protects you. |
| What are the costs? | What will I pay in total? | Total costs in euros, the annual cost impact and the breakdown by type of cost. |
| How long should I hold it and can I take money out early? | How long am I committing for? | The recommended holding period, how often you can sell and any penalty for leaving early. |
| How can I complain? | Where do I go if something goes wrong? | An address, email and website for complaints. |
| Other relevant information | What else should I read? | The prospectus, the reports and where past performance is published. |
Purpose and product
The document opens with a fixed statement of purpose:
This document provides you with key information about this investment product. It is not marketing material. The information is required by law to help you understand the nature, risks, costs, potential gains and losses of this product and to help you compare it with other products.
The product section then names the product and its manufacturer, gives an identifier such as the ISIN, a website and a telephone number, names the authority that supervises the manufacturer in relation to the KID, and states the date the document was produced or last revised.
What to look for: check that the ISIN is the one for the share class you are actually buying. Share classes of the same fund can differ in currency, minimum investment and, above all, cost. Check the date as well: a KID that has not been revised for more than a year is out of date.
Some KIDs carry a comprehension alert directly under the product details: "You are about to purchase a product that is not simple and may be difficult to understand." It appears for products whose behaviour is hard to predict, for example because they use complex formulas or derivatives. It is not a reason to avoid a product, but it is a reason to slow down.
What is this product?
This section describes the product in four parts:
- Type: the legal form, for example a sub-fund of an investment company or a unit in a common fund.
- Term: whether the product has a maturity date or is open-ended, and whether the manufacturer can end it early on its own decision.
- Objectives: what the product aims to achieve, what it invests in, how the return is generated, any benchmark it is managed against or compared with, and whether income is paid out or reinvested.
- Intended retail investor: the kind of investor the product is designed for, in terms of knowledge and experience, ability to bear losses, and time horizon.
What to look for: does the objective match what you were told by whoever recommended the product? Is the benchmark clearly named, and is the product managed actively against it or does it track it? Read the intended-investor description honestly: if it describes someone with a longer horizon or a greater ability to absorb losses than you have, take that seriously.
The risk indicator
The heart of the risk section is the summary risk indicator (SRI), a single number from 1 (lowest) to 7 (highest), shown on a scale like the one below.
The SRI combines two measures. Market risk reflects how much the product's value has moved in the past, using a volatility-equivalent figure calculated from price history. Credit risk reflects the chance that the manufacturer, or the issuer of what the product holds, cannot pay. For most funds the second measure plays little part, because the fund's assets are held separately from the manager's own, so the SRI is driven mainly by market risk.
| Market risk class | Volatility-equivalent figure |
|---|---|
| 1 | below 0.5% |
| 2 | 0.5% to 5% |
| 3 | 5% to 12% |
| 4 | 12% to 20% |
| 5 | 20% to 30% |
| 6 | 30% to 80% |
| 7 | above 80% |
These bands are wider than those of the old UCITS document. A broad equity fund with annual volatility of around 15 to 18 percent falls in class 4 on the KID, whereas the same fund showed 6 on the old KIID. A 4 on a KID is therefore not a cautious product. Compare the indicator only between KIDs, never with figures from the old document.
The text next to the scale matters as much as the number. It must explain material risks that the indicator does not capture, such as liquidity risk or the risks of a concentrated portfolio. Look out for two standard warnings in particular:
- Currency risk: if you will be paid in a currency other than your own, your final return depends on the exchange rate, and that risk is not included in the indicator.
- Liquidity risk: a warning that you may not be able to sell easily, or only at a price that significantly reduces what you get back.
The indicator assumes you keep the product for the recommended holding period. If you sell earlier, the actual risk can be very different.
Performance scenarios
Next comes a table of what you might get back, for an example investment of EUR 10,000, if you exit after one year and at the end of the recommended holding period. There are four scenarios, plus a statement about the minimum return:
- Minimum: usually "There is no minimum guaranteed return. You could lose some or all of your investment."
- Stress: what you might get back in extreme market conditions.
- Unfavourable, moderate and favourable: for most funds these are based on how the product, or a suitable benchmark, actually performed in the past. The figures show the worst, the middle and the best results over holding periods of the same length within roughly the last ten years.
| Scenario | If you exit after 1 year | If you exit after 5 years | |
|---|---|---|---|
| Minimum | There is no minimum guaranteed return. You could lose some or all of your investment. | ||
| Stress | What you might get back after costs Average return each year | EUR 4,910 −50.9% | EUR 4,420 −15.1% |
| Unfavourable | What you might get back after costs Average return each year | EUR 8,230 −17.7% | EUR 9,080 −1.9% |
| Moderate | What you might get back after costs Average return each year | EUR 10,560 5.6% | EUR 13,120 5.6% |
| Favourable | What you might get back after costs Average return each year | EUR 13,410 34.1% | EUR 17,050 11.3% |
The figures include all the costs of the product itself, but may not include all the costs you pay to your adviser or distributor, and they do not take account of your personal tax situation.
What to look for: the scenarios are illustrations based on the past, not forecasts. Read the stress and unfavourable rows first. The gap between the unfavourable and favourable outcomes tells you how wide the range of results has been. In the example above, after one year it runs from a loss of almost a fifth to a gain of a third. The moderate scenario is not a promise and not the most likely outcome. It is simply the middle of a range drawn from one particular stretch of history.
If the manufacturer cannot pay out
The heading of this section names the manufacturer: "What happens if … is unable to pay out?" It states whether a loss caused by the manufacturer's failure would be covered by an investor compensation or guarantee scheme.
For funds the answer is usually reassuring in one respect and sobering in another. The fund's assets are held by a separate depositary, apart from the management company's own assets, so the manager's insolvency does not by itself cost you your investment. But compensation schemes generally do not cover falls in market value: if the investments lose value, that loss is yours. For products that are themselves a promise to pay, such as structured notes, the issuer's failure can mean losing most or all of your money, and the KID must say so.
The cost tables
The cost section opens with a reminder that the person advising on or selling you the product may charge you other costs, and must tell you about them separately. It then shows two tables.
Costs over time
The first table shows, for an investment of EUR 10,000, the total costs in euros and the annual cost impact if you exit after one year and at the end of the recommended holding period. The calculation assumes you get back what you invested in the first year (a 0% return) and that the product then performs as in the moderate scenario.
| Investment EUR 10,000 | If you exit after 1 year | If you exit after 5 years |
|---|---|---|
| Total costs | EUR 135 | EUR 761 |
| Annual cost impact | 1.4% | 1.4% each year |
Annual cost impact shows how much costs reduce your return each year over the holding period. In this example, if you exit after five years, your average return per year is projected to be 5.0% before costs and 3.6% after costs.
Composition of costs
The second table breaks the total down by type of cost:
| Type of cost | Description | If you exit after 1 year |
|---|---|---|
| Entry costs | One-off cost when you invest. | EUR 0 |
| Exit costs | One-off cost when you sell. | EUR 0 |
| Management fees and other administrative or operating costs | 1.20% of the value of your investment each year. | EUR 120 |
| Transaction costs | 0.15% a year: an estimate of the costs of buying and selling the fund's investments. The actual amount varies with how much the fund trades. | EUR 15 |
| Performance fees | None for this product. | EUR 0 |
| Carried interest | None for this product. | EUR 0 |
What to look for: the annual cost impact is the best single figure for comparing products with similar holding periods, because it includes running costs, transaction costs and any one-off charges spread over the holding period. One-off charges weigh heavily if you leave early. Add a 3% entry charge to the fund above and its annual cost impact rises to 4.3% if you exit after one year, and to 2.0% a year over five years. Entry charges in a KID are maximums, so ask your distributor what it will actually charge. For a fuller picture of costs, see What the TER does and does not include.
Holding period and taking money out early
This section states the recommended holding period and explains why it was chosen: usually the time the product needs for its strategy to have a reasonable chance of working. It also says how and how often you can sell, and what it costs to leave early.
What to look for: compare the recommended holding period with your own horizon. An open-ended fund that can be sold on any business day is very different from a closed-ended fund, which may not allow you to take money out at all before the end of its term. Check for exit charges, notice periods and any conditions under which dealing can be suspended.
Complaints and other information
The complaints section gives a postal address, an email address and a website for complaints about the product, the manufacturer or the person who sold it to you.
The final section, other relevant information, points to further documents. For funds these include the prospectus, which is the full legal description, and the annual and semi-annual reports. It also gives a link to where the fund's past performance and its earlier performance-scenario calculations are published. Follow that link: a record of actual annual returns, set against the benchmark, often tells you more than the scenarios do.
A checklist before you invest
- The KID is the current version, dated within the last twelve months, and it is for the share class you are buying.
- You understand what the product invests in and how it aims to make money.
- The risk indicator and the recommended holding period fit your capacity for loss and your time horizon.
- You have read the stress and unfavourable scenarios, not only the moderate one.
- You know the total costs in euros and the annual cost impact, and you have asked your distributor what it charges on top.
- You know how and when you can take your money out, and what that costs.
- You know where to complain if something goes wrong.
Frequently asked questions
Is the KID the same as the prospectus?
No. The prospectus is the full, legally binding description of a fund and can run to hundreds of pages. The KID is a standardised summary of at most three pages and must be consistent with the prospectus and the fund's other legal documents.
Does every fund have a KID?
A KID is required whenever a product is made available to retail investors in the EU, meaning anyone who is not classified as a professional client. Funds offered only to professional investors do not need one.
Why do the performance scenarios differ from the fund's past performance?
They measure different things. Past performance shows the actual return for each calendar year. The scenarios show the worst, middle and best results over holding periods of the recommended length within a historical window, calculated by a prescribed method. Both look backwards, and neither predicts the future.
Why has my fund's risk number changed?
The indicator is recalculated from recent price history. If markets become more volatile, a fund can move up a class, and it can move down again when conditions calm. A change in class does not necessarily mean the fund's strategy has changed.
What happened to the old KIID for UCITS funds?
Until the end of 2022, UCITS funds used a two-page Key Investor Information Document. It showed a risk number based on volatility with narrower bands, and a bar chart of past performance. Since 1 January 2023 UCITS funds have used the PRIIPs KID described here, with its own risk indicator, performance scenarios and full cost tables.
Will I get the KID in my own language?
The KID must be written in an official language of the member state where the product is offered, or in another language accepted by that state's authority. It is usually available from the manufacturer's website as well as from your distributor.
In summary
The Key Information Document is short, standardised and written to a fixed pattern, which makes it the fairest way to compare one fund with another. Read it in order. Check that it is current and for the right share class. Understand what the product does and whom it is for. Take the risk indicator and the unfavourable scenarios seriously. Judge costs by the total in euros and the annual cost impact. Make sure the recommended holding period matches your own. Ten minutes with a KID before investing is time well spent.