Article 8
Explanation of potential risks and rewards, including the use of an indicator
1. The ‘Risk and reward profile’ section of the key investor information document shall contain a synthetic indicator, supplemented by:
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(a) |
a narrative explanation of the indicator and its main limitations; |
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(b) |
a narrative explanation of risks which are materially relevant to the UCITS and which are not adequately captured by the synthetic indicator. |
2. The synthetic indicator referred to in paragraph 1 shall take the form of a series of categories on a numerical scale with the UCITS assigned to one of the categories. The presentation of the synthetic indicator shall comply with the requirements laid down in Annex I.
3. The computation of the synthetic indicator referred to in paragraph 1, as well as any of its subsequent revisions, shall be adequately documented.
Management companies shall keep records of these computations for a period of not less than five years. This period shall be extended to five years after maturity for the case of structured funds.
4. The narrative explanation referred to in paragraph 1(a) shall include the following information:
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(a) |
a statement that historical data, such as is used in calculating the synthetic indicator, may not be a reliable indication of the future risk profile of the UCITS; |
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(b) |
a statement that the risk and reward category shown is not guaranteed to remain unchanged and that the categorisation of the UCITS may shift over time; |
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(c) |
a statement that the lowest category does not mean a risk-free investment; |
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(d) |
a brief explanation as to why the UCITS is in a specific category; |
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(e) |
details of the nature, timing and extent of any capital guarantee or protection offered by the UCITS, including the potential effects of redeeming units outside of the guaranteed or protected period. |
5. The narrative explanation referred to in paragraph 1(b) shall include the following categories of risks, where these are material:
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(a) |
credit risk, where a significant level of investment is made in debt securities; |
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(b) |
liquidity risk, where a significant level of investment is made in financial instruments, which are by their nature sufficiently liquid, yet which may under certain circumstances have a relatively low level of liquidity, so as to have an impact on the level of liquidity risk of the UCITS as a whole; |
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(c) |
counterparty risk, where a fund is backed by a guarantee from a third party, or where its investment exposure is obtained to a material degree through one or more contracts with a counterparty; |
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(d) |
operational risks and risks related to safekeeping of assets; |
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(e) |
impact of financial techniques as referred to in Article 50(1)(g) of Directive 2009/65/EC such as derivative contracts on the UCITS’ risk profile where such techniques are used to obtain, increase or reduce exposure to underlying assets. |