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Basic Information Sheets Recognize The Risks and Costs Of An Investment

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Basic Information Sheets Recognize The Risks and Costs Of An Investment. How risky is an investment? What performance does it promise? What is the EU regulation?

The essentials in brief:

  • The aim of the EU regulation on the basic information sheets is that you can better compare different investments with each other and make better decisions.
  • The market watchdogs looked at information sheets from various providers. The result: the information can be misleading. So they don’t always help with a decision.
  • We show where traps lurk.

As a small investor, you are faced with a complex range of different investment products. But where is the money safe and secure, where are high returns possible? A look at the information sheets of the providers should help. The aim of the regulation is to better inform private investors about the risks and cost structures of the different products and thus to increase comparability.

Packaged investment products: when does the information obligation apply?

So-called “packaged investment products” for small investors are affected by EU regulation. These are investment and insurance products for which your repayment claim may be subject to fluctuations, i.e. the value of other assets is subject to changes. These include, for example:

  • structured financial products such as certificates or warrants
  • other insurance investment products such as unit-linked and index-linked life insurance
  • from 2020 also public funds

Uniform key information sheets: what must be in them?

To ensure that key information sheets are as uniform as possible, the PRIIPs Regulation contains binding provisions on form and content.

Formal requirements:

  • The key element information document must be given to you before you sign the contract .
  • If you wish, you have the right to receive a printed version .
  • The document must be entitled “Key information sheet” on the top of the first page .
  • For a better overview, a key information sheet may contain a maximum of three A4 pages .
  • All information must be precisely formulated and prepared in an understandable manner.
  • The key information document must follow a question style (for example: ” What kind of product is it?”).
  • The provider must publish the documents on his website and keep them up to date .
  • If a provider does not adhere to these information requirements, you should be careful. You can then also inform the responsible supervisory authority Bafin or the consumer advice centre.

Content requirements:

  • Information about the product type and the essential characteristics
  • Objectives of the product
  • Information on the opportunities and risks of the product
  • Pay particular attention here! Because with investments with high possible returns you can often just as quickly lose money. If you want to invest in risky investment products, you should be able to afford defaults.
  • Cost: direct and indirect costs, including one-time and recurring costs
  • Investment horizon: information on the investment period for which you have to spare money.
  • Your options to complain

Suitable performance scenarios: for example the estimated annual average return for different maturities. Caution: As a market watchdog study shows, this is not always a realistic aid. If the investment has performed unusually well over the past few years, the example calculations can look impressive. But that doesn’t mean that things have to continue to run as well in the next few years. Strong fluctuations are possible with some investments.

Hello, I have been working as an investment consultant and author for more than 20 years. I love what I do and I have enriched everyone around me. A lot of money is not important, the main thing is how you use the money.

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