The Key Facts Statement (KFS) is not a generic template that fits all types of investment products. Instead, its format is tailor-designed in order to properly present the different features and risks of different investment products.
For example, insurance-linked assurance schemes (ILAS) and index funds/ETF are two completely different products. Therefore, they both need a specially designed KFS to highlight the most important facts and risk factors.
KFS for ILAS
ILAS is a long-term investment-cum-insurance product that has a relatively complicated structure and features, e.g. complex fees and charges and long lock-in period.
To address the concerns that average investors may not easily understand the features and risks of ILAS products, their issuers are required to disclose them properly in a separate KFS, although ILAS itself is not authorised by the SFC under the Code on Unit Trusts and Mutual Funds (UT Code).
In the Quick Facts section of the KFS for ILAS, you will find the name of the insurance company; the premium (single or regular) and its payment frequency; the maximum premium payment term; the minimum and maximum investment; policy currency; death benefits (if any); period with surrender charge; and the governing law of policy.
Other information you may want to pay attention to include the fees and charges paid to ILAS issuers, which are expressed as a percentage of the total premium(s) to be paid by a policyholder. These also include upfront charges and early surrender/withdrawal charges.
Some policies may entitle the policyholder to a loyalty or special bonus up to a certain percentage of the policy value if the policy is kept for a certain of years. If the policy has this feature, the summary of the loyalty bonus will also be included in the KFS.
A typical ILAS involves credit and insolvency risks; early surrender/withdrawal penalty risks; premium holiday risks; market risks; and foreign exchange risks (if the underlying fund is denominated in a foreign currency). The explanation of these risks, along with other additional risks, is also set out in the KFS.
Take a look at this sample KFS for an ILAS, which gives you an idea about the breadth and depth of product information you will read.
KFS for index fund/ETF
In the objectives and investment strategy section in the KFS, the details of the underlying index and what investment strategy the fund adopts to replicate the performance of the index are specified.
If a synthetic replication strategy is used, you will also find the selection criteria of the counterparties issuing the financial derivatives that the fund invests in and the nature of collateral (or other investments serving similar purposes), if any.
Besides ongoing fees payable by the fund, the fees and charges section also sets out charges incurred when trading the ETF on the Stock Exchange of Hong Kong.
You will also find the fund’s website in the last section, where you can read the fund’s offering document; latest financial reports; last closing net asset value (NAV) and estimated NAV; and counterparty exposure and collateral arrangement for ETF adopting synthetic replication strategy.
Below are two samples for an index fund and an ETF KFS, respectively, which give you an idea about the breadth and depth of fund information you will read.