Investment Funds – Investors' Academy

The Key Investor Information Document (KIID) is a standard document that contains the most important information about each investment fund. These include the fund's goals, characteristics, risks and costs. Most European investment funds are subject to supervision by the European financial market regulators and are required to have a KIID. The KIID allows you to better assess the risks of an investment fund and makes it easier to compare funds from different providers. This allows you to assess whether you want to invest in a given investment fund. Read this document before you invest in a particular investment fund.

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

Investment funds are required to have a prospectus. An approved prospectus allows investment funds to be listed on a financial market, such as a stock exchange. The Key Investor Information Document provides you with the most important information about the investment fund on which you can base your investment decision. The prospectus contains more detailed information about the investment fund.

The costs of an investment fund affect its returns. It's therefore important that you know what costs the fund charges. These can also be found in the KIID. Every fund charges fees for the management of the fund. These include an entry fee, management fee, administration fee and transaction fee:

• The entry fee is a one-off fee when buying shares in the fund. They are usually expressed as a percentage of the capital you invest.
• The management and administration fees together constitute the running costs. Running costs may vary from year to year.
• Transaction fees are the costs incurred by the fund manager when buying and selling the underlying investments held in the fund. These transaction fees are not part of the running costs and are not included in the KIID either.

The running costs and transaction fees are included in the price of the investment fund and are determined by the investment fund. You therefore do not have to pay these costs when you buy the fund, but they are deducted (annually) from its net asset value.

In addition, you may have to pay transaction fees to your bank or broker when you buy or sell an investment fund.

Most investment funds are easily traded. What you need to take into account is that almost all investment funds only fix a price once a day. How does this work? The fund manager collects all buy and sell orders for the day and sets them off against each other. Based on this, they determine a single price. They do this at what's known as a 'cut-off time'. If you place an order before the cut-off time, the fund manager will execute your order at the price at the cut-off time on the same day. If you place an order after the cut-off time, the fund manager will include your order in the next day's transactions, and execute your order at the price at the cut-off time on the next day. The cut-off time for most European investment funds is at the end of the afternoon. You can see which cut-off time applies for an investment fund in the product details for that investment fund.

There is a difference in how the fund manager determines the price of the investment fund. This is derived from how the investment fund can issue new investments. We distinguish between an open-end (Bevek) and a closed-end (Bevak) investment fund.

• In the case of an open-end investment fund, the fund manager can issue and redeem new investments on an ongoing basis. The number of units (shares) issued is not limited. As a result, the fund can easily add new investments or redeem existing ones, which means that the price of the investment fund barely reacts at all to supply and demand. The fund manager fixes the price mainly on the basis of the actual values of the underlying investments and other assets of the investment fund. This value is known as the intrinsic value. The risk of sharp price fluctuations is therefore much lower for an open-end investment fund than for a closed-end investment fund. Most of the investment funds in which you can invest through ABN AMRO are open-end investment funds.
• With a closed-end investment fund, the total number of shares that the fund can issue is fixed. The price of the investment fund may therefore react strongly to supply and demand and may differ from the actual value of the fund (based on the underlying assets). For example, if many investors want to buy the investment fund, demand will be much greater than supply. As a result, the price of the investment fund may rise sharply. If investors want to sell the investment fund on a massive scale, supply is much higher than demand. This, in turn, means that the price could fall sharply. With a closed-end investment fund, there is therefore a chance that you may not be able to buy or sell the investment fund at the time and price you want. This increases the liquidity risk, which may be a disadvantage for you, particularly in a negative market.

With distribution funds, you receive a dividend on a defined date, depending on the fund's dividend policy.

Accumulation funds, on the other hand, do not pay out dividends. The income collected by the fund is reinvested in the fund, which means that you only receive the capital gain when you sell the shares.

Most investment funds you can invest in through ABN AMRO are active investment funds. The fund manager of an active investment fund applies a specific strategy when selecting investments and therefore seeks to achieve a higher return than the benchmark index.

An exchange-traded fund (ETF) is usually a passive investment fund. This means that the ETF fund manager only tracks the benchmark and therefore aims to achieve the same (or almost the same) return as that of the benchmark.