Investment funds

The Key Investor Information Document, or KIID for short, is a standard document that contains the most important information about an investment fund, such as the purpose, features, risks and costs of the fund. Most European investment funds are supervised by the regulatory bodies of the European financial markets. They are required to have a KIID. With the KIID you can better estimate the risks of an investment fund and compare funds from different providers more easily. It will help you decide whether you want to invest in this investment fund. Read this document before you invest in the investment fund for the first time.

Each KIID has a risk bar. This immediately shows you how high the risk of the investment fund is on a scale from 1 to 7, where 1 is the lowest risk and 7 the highest risk. That calculation of the risk is mainly based on the volatility of the investments within the fund. The faster the prices of these investments rise or fall, the higher the score on the risk bar.

Read more about the Key Investor Information Document

You can also read the prospectus. Investment funds are required to have a prospectus. With an approved prospectus, investment funds can be admitted to a financial market, such as a stock exchange. The Key Investor Information Document provides the main information about the investment fund on which you can base your investment decision. More detailed information about the investment fund can be found in the prospectus.

The costs of an investment fund affect its return. It is therefore important that you know what costs the fund charges. You can find this in the KIID. Each fund charges costs for the management of the fund, such as management costs, administration costs and transaction costs:

• The management costs and the administration costs together form the ongoing costs. The ongoing costs can vary from year to year. 
• The transaction costs are the costs incurred by the fund manager to buy and sell the underlying investments within the fund. These transaction costs are not part of the ongoing costs and are not included in the KIID. 

All costs (ongoing costs and transaction costs) are included in the price of the investment fund and are determined by the investment fund. In addition, you may have to pay transaction costs to your bank or broker when you buy or sell an investment fund.

Most investment funds can be traded easily. What you have to take into account is that almost all investment funds only get one price once a day. How does this work? The fund manager collects all the buy and sell orders of one day and settles them against each other. Based on this, he determines one price. He does this at a so-called cut-off time. If you place an order before the cut-off time, the fund manager will execute your order at the price of the cut-off time of the same day. If you place an order after the cut-off time, the fund manager will take your order to the next day and execute your order at the price of the cut-off time of the next day. Most European investment funds have their cut-off time at the end of the afternoon. Under the product features of the investment fund you can read what cut-off time applies to that investment fund.

There is a difference in the way the fund manager determines the price of the investment fund. This has to do with how the investment fund can issue new participations. We distinguish between an open-end and a closed-end investment fund here. 

• In an open-end investment fund, the fund manager can continuously issue and take in new participations. As a result, the price of the investment fund reacts very little to supply and demand. The fund manager determines the price mainly on the basis of the value of the underlying investments and other assets of the investment fund. We call this value the intrinsic value. The chance of strong price fluctuations is therefore much smaller with an open-end investment fund than with a closed-end investment fund. Most investment funds in which you can invest with ABN AMRO are open-end investment funds.
• In a closed-end investment fund, the total number of participations that the fund can issue is fixed. The price of the investment fund can therefore react strongly to supply and demand. For example, if many investors want to buy the investment fund, the demand is much greater than the supply. As a result, the price of the investment fund may rise sharply. If investors want to sell the investment fund en masse, the supply is much greater than the demand. And this in turn may lead to a sharply falling price. With a closed-end investment fund, there is a chance that you cannot buy or sell the investment fund at the time and at the price you want. This can be a disadvantage for you, especially in a negative market.