Product key facts statements
Before making an investment decision, it is only prudent that you gather as much information as possible to help you understand the product. To find out all relevant information about an investment product - including its nature, its structure, its terms and conditions, and above all, the risk factors - you should take time to read the offering document. However, for a quick overview of the key features and risks of an investment product, the "product key facts statement" (KFS) will come in handy.
A KFS summarises the key features and risks of an investment product in plain and easy-to-understand language. Retail funds, investment-linked assurance schemes and unlisted structured investment products that are authorised by the SFC and are marketed to the public in Hong Kong are required to provide a KFS. However, you should bear in mind that a KFS is not a substitute for the full set of the offering documents. It only gives you a summary of the key features and risks of an investment product. Therefore, do not rely solely on the KFS to make an investment decision. You must read the offering document for further details before deciding whether or not to invest.
What to look up in a KFS
Regardless of what type of funds you plan to invest in, there are certain key features and risks that you can always find in the KFS:
- Quick facts (including the name of the fund manager and custodian, dealing frequency, dividend policy, base currency, and ongoing charges figure of the fund)
- What is this product?
- What are the investment objectives and strategy?
- What are the key risks?
- Performance information
- What are the fees and charges?
- Additional information (e.g. the frequency in which the net asset value of the fund is calculated, and the frequency in which the price of units is published)
However, certain types of funds have unique features and risk profiles. Six KFS templates for funds are available on the SFC's website to give investors an understanding of the content and format of the KFS and to accommodate for different types of funds:
- General funds;
- Guaranteed funds / funds with structured pay-outs;
- Exchange traded funds;
- Index funds;
- Recognised Mainland funds – general funds; and
- Recognised Mainland funds – index funds.
These KFS templates are for illustration only. The information and layout of an actual KFS may be different from product to product, and issuer to issuer. Apart from the above-mentioned common features that can be found in a KFS, you can also find unique features in KFS templates for different types of funds:
1. General Funds
In the "Objectives and Investment Strategy" section, you can find out whether the fund will invest in financial derivative instruments for investment purposes and if so, the additional risks associated with such instruments which are set out in detail in the offering document.
2. Guaranteed funds / funds with structured pay-outs
You can find out the key terms of the guarantee from the section "What are the key terms of the guarantee". For funds offering structured pay-outs, you can also learn about the performance analysis under worst, base and best case scenarios of such pay-outs.
3. Exchange Traded Funds (ETFs)
In the "Objectives and Investment Strategy" section, you can find out the details of the underlying index of the ETF, including the top 10 index constituents, and also illustrative explanation of the ETF's synthetic replication strategy, information about collateral and / or counterparties for the ETF. You can also find out the ETF's tracking difference in the "Quick facts" section.
4. Index Funds
Find out from the "Objectives and Investment Strategy" section which constituent stocks make up the underlying index of the index fund. For index funds using synthetic replication strategies, you can also find out the information about collateral and/or counterparties in the KFS. You can also find out the index fund’s tracking difference in the "Quick facts" section.
5. Recognised Mainland Funds – General Funds
You can find out in "What are the key risks?" section the key risks specific to investment in a Recognised Mainland Fund, ie a Mainland fund authorised for public offering in Hong Kong pursuant to Mainland-Hong Kong Mutual Recognition of Funds arrangement.
6. Recognised Mainland Funds – Index Funds
You can find out from the "Objectives and Investment Strategy" section the top 10 constituents of the underlying index which the index fund aims to track. You can also find out the index fund’s tracking difference in the "Quick facts" section.
Some KFS may be longer than four pages because product issuers may find it necessary to provide more explanation or include illustrations (such as graphics, charts and diagrams) to help investors understand the fund.
Irrespective of what fund you plan to invest in, you should always read the whole set of the offering documents, including the KFS of the fund to understand the nature and key risks of the fund before you invest in it.