If you decide to invest part of your savings you shouldn’t just focus on the possible earnings. It is also important to read the information documents carefully before subscribing to any financial product such as funds, bonds or certificates. The reason is that in this way you can know the characteristics, costs and risks you are facing.
The mandatory documents required by law
Both Italian and European legislation provide that clear and complete documents must be made available to those who want to invest in funds so as to guarantee maximum transparency and allow investors to make truly informed choices.
Among these are:
- the information prospectus;
- the Kiid;
- fund management regulations;
- the contractual documentation of insurance and financial products.
Kiid
Before investing in mutual funds it is essential to know what the Kiid is or Key investor information document. This is a concise document which is usually made up of two pages which summarize the main information of the financial product.
It was introduced to help savers better understand investment funds and contains essential elements such as:
- the objectives;
- the costs applied;
- investment policy;
- the level of risk.
By law, the Kiid must be delivered before subscribing to the fund. Thanks to it, in fact, investors can have a general vision of the product before delving into other more technical documents.
Investment prospectus
The information prospectus is the official document that explains in detail the characteristics of the financial product you choose and the risks associated with it. It is used in particular when an investment is offered to the public or when a security is admitted to trading on regulated markets.
The objective is to allow investors to have all the information necessary to carefully evaluate the choices to be made. It contains:
- the data of the entity issuing the product;
- possible costs;
- investment strategies;
- possible risks;
- the method of reimbursement or sale of the security.
There is a lot of information contained in the prospectus, so it can be long and complex to read. However, it is important to understand how investing really works.
The legislation provides that it must always be made available to the investor, who has the right to receive a free copy before signing. Very often it is also available online on the website of the issuer or the entity offering the financial product.
If you want to go into even more detail, you can request specific contractual conditions or information sheets which contain the legal clauses and more in-depth techniques linked to the individual investment.
Management regulation
If you decide to invest in a mutual fund, in addition to the information prospectus and the Kiid, it is also important to read the management regulations or the document that establishes the rules with which the fund is administered by the management company. It also explains how the capital raised from investors is managed.
Reading the regulation allows you to:
- better understand the rules;
- understand which strategy to adopt;
- know the limits within which a management company can operate.
For those who don’t know, there are two main types of funds:
- open, which allow you to subscribe or redeem units at any time based on the updated value of the fund;
- closed, in which the capital that is raised remains stable for the entire duration of the investment, the units cannot be redeemed freely at any time (usually only at the scheduled maturity or by sale on the market) if the fund is listed.
What to consult before investing in various products
It is essential to always read the information prospectus which describes the characteristics of the issuer and explains the investment conditions even if you purchase securities such as bonds, certificates or covered warrants.
Bonds are debt securities issued by banks, states or companies to raise capital. Those who purchase them lend money to the issuer and receive interest in exchange, which is called coupons.
Certificates are more complicated financial instruments, given that their return depends on the performance of an asset such as:
- an action;
- a raw material;
- a currency;
- a stock market index.
Covered warrants are derivative instruments that allow the investor to buy or sell a security at a set price within a certain period. Their value varies based on how the reference market moves. In the event that the stock does not move as expected, they can lose the entire value and the investment risks being wiped out.
Summary note
Before subscribing to any of these products, in addition to the documents indicated above, it is important to view the summary note. Written in simpler language, its aim is to make the main data accessible even to those without specific financial skills.
It is processed following a standard format which is established by European legislation to facilitate comparison with other financial products. Thanks to this structure, in fact, investors can easily compare other instruments and evaluate the one best suited to their needs.
What to check before taking out insurance
If you want to subscribe to financial insurance products, such as life policies with an investment component, it is always important to read the summary sheet and the contract conditions:
- the summary sheet summarizes the general information about the product and the different investment options available;
- the contract conditions explain the rights and obligations of the parties, the methods of collecting insurance benefits and the costs applied.
Reading documents helps reduce risks
Reading information documents does not completely eliminate the risks associated with investments. However, it can help you understand them better.
Various financial products have complex characteristics and costs that are not always immediately understood. Checking the official documentation serves precisely this purpose, to make these aspects more transparent.
Furthermore, analyzing the information gives you the opportunity to understand if the investment is in line with your financial objectives and your risk profile.
