======Key Information Document (KID)======
The Key Information Document (also known as the KID) is your pre-contractual cheat sheet for a wide range of investment products sold in the [[European Union]]. Think of it as the mandatory nutritional label for your investments. Brought to life by the [[PRIIPs]] (Packaged Retail and Insurance-based Investment Products) regulation, its sole purpose is to cut through the financial jargon and present the essential facts in a clear, standardized, and wonderfully short (maximum three A4 pages) format. Before you can invest in a [[mutual fund]], structured product, or certain insurance-based investments, the provider //must// hand you this document. Its superpower is standardization; because every KID for every product follows the same template, it allows you, the everyday investor, to easily compare the risks, potential returns, and, crucially, the costs of different products side-by-side. It’s a powerful tool designed to protect you from nasty surprises down the road.
===== What's Inside a KID? =====
The KID is structured like a Q&A, designed to answer the most pressing questions an investor might have. While the exact wording can vary slightly, it always contains these key sections.
==== What is this product? ====
This is the "elevator pitch" section. It gives a brief, plain-language summary of the investment, including:
  * Its main objectives (e.g., to track the FTSE 100 index, to generate a regular income).
  * The type of retail investor it's intended for.
  * The term of the product, if it has one.
==== What are the risks and what could I get in return? ====
This is the heart of the document. It contains two critical components:
  * **The [[Summary Risk Indicator (SRI)]]:** This is a simple scale from 1 (lowest risk) to 7 (highest risk). It combines [[market risk]] (how prices might fluctuate) and [[credit risk]] (the risk the issuer can't pay). This single number provides an at-a-glance feel for the product's volatility and potential for loss.
  * **Performance Scenarios:** The KID presents four potential performance scenarios (stress, unfavourable, moderate, and favourable) over different time periods, including the [[recommended holding period]]. These scenarios show what you //might// get back after costs. Bold warning: These are **not** guarantees or forecasts! They are illustrations based on how the investment has behaved in the past and are designed to show a range of possible outcomes, good and bad.
==== What happens if the PRIIP manufacturer is unable to pay out? ====
This section addresses [[counterparty risk]]. It explains whether your investment is covered by an investor compensation or guarantee scheme and what limitations might apply.
==== What are the costs? ====
For many investors, this is the most valuable part. It presents all costs in a standardized table, breaking them down into one-off costs (like entry or exit fees) and ongoing costs (like management fees). Most importantly, it presents a "Reduction in Yield (RIY)" figure. The [[Reduction in Yield (RIY)]] shows, in percentage terms, how much the total costs you pay will reduce your investment's return each year. It makes the real impact of fees crystal clear.
==== How long should I hold it and can I take money out early? ====
This part outlines the product’s recommended holding period and explains if there are any penalties or conditions for cashing in your investment early.
===== A Value Investor's Take on the KID =====
While value investors often prefer buying individual [[stocks]] and [[bonds]], the KID is an invaluable tool when considering funds or other packaged products to complement a portfolio.
=== Cost is King ===
The KID’s transparent cost breakdown is a gift. A core tenet of value investing is to minimize fees, as they are a guaranteed drag on performance that compounds horribly over time. The RIY figure is your best friend here. It translates confusing fee percentages into a single, understandable impact on your bottom line. When comparing two similar funds, a significantly lower RIY in one is a massive green flag.
=== Risk First, Returns Second ===
The KID forces you to look risk squarely in the eye. The SRI provides a simple, immediate check on whether a product's volatility matches your own tolerance for risk. This aligns perfectly with [[Benjamin Graham]]'s mantra of "capital preservation." The performance scenarios, especially the "stress" scenario, are a practical exercise in preparing for the worst, a key part of building a [[margin of safety]] into your investment plan.
=== A Tool, Not a Crystal Ball ===
A savvy investor uses the KID as a powerful screening tool, not as a substitute for thought.
  * **Screen out the bad stuff:** Use the KID to quickly discard products that are too complex, too expensive, or too risky for your goals.
  * **Dig deeper:** The KID tells you about the "package," but not necessarily the quality of what's inside. If a fund looks promising, your next step is to investigate its strategy, its manager, and its top holdings.
  * **Ignore the Hype:** The "favourable" performance scenario can look tempting, but it's just a simulation. Never make an investment decision based on the best-case scenario alone. A value investor prepares for the storm, knowing the sunshine will take care of itself.