In this series, we debunk the jargon and explain a popular investment term or theme. Here they are KIDs.
What are these?
Nothing to do with children, as you suspected. KID stands for Key Information Document – a summary of the facts and figures you need to know before choosing a fund.
This information, compiled by the fund manager, includes the fund’s objectives, risk and reward profile, costs and performance data.
Looking up: KIDs are a summary of the facts and figures you need to know before choosing a fund
The document is a requirement of the PRIIPs – regulations for packaged retail and insurance-based investment products – an EU-wide security standard for investors.
The KID is a shorter, simplified version of the document it largely replaced, known as the KIID – Key Investor Information Document.
This is a requirement of another EU-wide set of rules on UCITS – Undertakings for Collective Investment in Transferable Securities Directive.
Both sets of EU regulations were adopted by Britain after Brexit.
Collective investment is a fancy name for any type of fund, including investment trusts and ETFs – exchange-traded funds.
Why am I reading about this now?
The methods used to calculate some of the other figures in the KID, such as the charges, have become a source of controversy.
There is particular controversy over the forward-looking performance figures in the document, which are widely regarded as misleading.
For this reason, Chancellor Jeremy Hunt has declared the entire PRIIPs legislation ‘not fit for purpose’. Why would he say that?
Controversy: Chancellor Jeremy Hunt has declared the entire PRIIPs legislation ‘not fit for purpose’
Investment fund managers argue that KIDs – which are supposed to ensure that consumers make an informed decision – do exactly the opposite.
The trade body Association of Investment Trusts (AIC) says that ‘too many KIDs overstate potential performance – and underestimate the risks which could mislead consumers about the returns they could receive’.
The AIC also takes issue with the charge disclosure rules, although the watchdog Financial Conduct Authority (FCA), which says the current system ‘does not support good customer outcomes’, has made some concessions on this front.
Will this be arranged?
As part of Edinburgh’s major financial services reforms, the government has promised to introduce a new disclosure regime to replace PRIIPs and UCITs.
To date, however, the House of Commons committee overseeing the reforms says the big promises have yet to be delivered. This increases the pressure to take action this year.
In the meantime, where can I go for more reliable information?
While you wait for the EID to be replaced, it’s always worth checking if your money is on the recommended lists set out by AJ Bell, Bestinvest, Fidelity, FundCalibre, Hargreaves Lansdown and Interactive Investor.
Bestinvest’s Dog Fund ratings are a guide to the funds that aren’t delivering results, whatever their KID may say.
Despite the fuss, I’m still interested in the KIDs for my Isa funds…
You should be able to find a fund’s KID on the manager’s website, as well as on the fund sections of platforms such as Interactive Investor and AJ Bell.
KIDs aren’t the most exciting reading material. But beyond their shortcomings, you may discover things you didn’t know – and probably should have known.