At a glance
- A fund pools many people’s money and invests it together; the value of your units rises and falls with the value of what it holds.
- The 1–7 risk indicator on the Key Information Document (KID) shows at a glance how much the value may move; 1 does not mean “risk-free”.
- The time until you need the money matters as much as the fund.
- Past returns are not a promise; costs, on the other hand, are certain.
What a fund is
An investment fund pools many people’s money and invests it together, according to a stated aim: for example in deposits and short-term bonds, in bonds, in shares or in a mix. Investors buy units. The unit price follows the value of what the fund holds, which is why it goes up and down.
In a life policy linked to investments, the part of the premium that is invested buys units in funds from the list the policy offers. So the value of your policy also depends on how those funds perform.
Low, medium and high risk
| Risk | What it usually holds | How the value usually moves | What to expect |
|---|---|---|---|
| Low | Deposits, money-market instruments, short-term bonds. | Small moves. | A steadier path, usually with less room to grow; inflation can eat into the value. |
| Medium | A mix of bonds and shares. | Moderate ups and downs. | A balance between stability and growth; bad years happen. |
| High | Mainly shares, perhaps of particular regions or sectors. | Large moves, both up and down. | More room to grow over time, with falls that can be sharp and can last. |
The 1–7 indicator on the Key Information Document
For investment products sold to individuals, and for insurance products with an investment element, you must receive a Key Information Document (KID) before you sign. It contains the summary risk indicator (SRI), a scale from 1 to 7: 1 is the lowest risk class and 7 the highest. The indicator combines how much the value usually moves and how likely it is that the issuer cannot pay.
- 1 does not mean risk-free. It means the lowest class on the scale.
- The recommended holding period is in the same document. If you need the money sooner, the risk can be higher than the number shows.
- When a policy offers many funds, the document may show a range (for example 2 to 6), and each fund has its own information. Ask for it for the funds you are interested in.
- The performance scenarios in the document show what could happen under different conditions. They are not a forecast or a promise.
Time horizon: when you will need the money
Your time horizon is the time from today until the day you need the money. The longer it is, the more time an investment has to get through bad years. The shorter it gets, the more a fall costs at the moment you have to take the money out. That is why the same fund may suit a 25-year goal and not a 3-year goal.
A drop is not a loss until you sell
When the unit price falls, your account value shrinks “on paper”. But the units are still yours, and if the price recovers, so does the value. The loss becomes real when you sell at a low price, out of need or fear. Recovery is not guaranteed, nor is how long it takes. That is why two things help: a separate emergency fund, so you do not have to sell at a bad moment, and a level of risk you can live with emotionally too.
How someone might think about it at 25, 40 and 55
The examples show a way of thinking, not recommendations. Two people of the same age may need very different things.
Maria, 25: saving for retirement
She has decades ahead of her. A higher risk may be acceptable, if she can watch the value fall in some years without stopping her contributions. The key question for her: “if I see the value down for two years, will I carry on?”
Nikos, 40: studies in 12 years and retirement in 25
He has two goals with different horizons. It may make sense to look at them separately: for the studies, the risk comes down as the date approaches; for retirement there is still time. The key question: “which money is for which goal, and when?”
Eleni, 55: retiring in 7 years
A big fall shortly before retirement has less time to recover. Many people her age lower the risk gradually while keeping a part for growth, because retirement can last many years. The key question: “how much will I need in the first years of retirement, and how much can wait?”
People often speak of three profiles: conservative, balanced and dynamic. A profile describes your attitude to risk; it is not a choice of fund. Which fund or policy is suitable for you is assessed by a licensed advisor, from your goals, horizon, financial situation, knowledge and experience, and tolerance for risk.
Costs: the only certainty
A fund’s return is not known in advance; its costs are. There may be entry or allocation charges, the fund’s yearly management charge, charges for the policy and the life cover, switching and exit charges. The Key Information Document shows the costs and how they affect the value over time. Small differences in costs, over many years, make a big difference.
Why past returns are not a promise
A fund that did very well in recent years may have done so for reasons that will not repeat: a particular market, a sector, a period of low interest rates. Past returns show how the fund behaved, and how much it moved in bad years. They do not say what it will do from here. Anyone who talks to you only about returns, and not about risk, horizon and costs, is telling you half the story.
Questions worth asking
- What is the risk indicator (1–7) of each fund I am looking at, and what is the recommended holding period?
- What are all the costs, of the fund and of the policy, and how do they affect the value over time?
- How far did the fund fall in its worst year, and how long did it take to recover?
- Can I change funds later? At what cost?
- What happens if I need the money before the horizon?
What you can do now
- Write down your goal and the year you will need the money.
- Find the Key Information Document for each fund you hold or are considering, and note the risk indicator.
- Ask yourself honestly how big a fall you could live with without selling.
- Keep an emergency fund apart from your investments.
- Before deciding, discuss it with a licensed advisor, who will assess suitability for you.
This is education, not investment advice or a recommendation of any fund or product. Past returns do not guarantee future ones, and the value of an investment can go down as well as up. Which fund suits you is for a licensed advisor to judge, assessing suitability from your goals, time horizon, financial situation and tolerance for risk (Article 30 of the Insurance Distribution Directive, IDD). AVRASTRO is not an insurer.
Read also: Monthly contributions and market falls · Switching funds over the years · How to read your annual statement · Glossary in three languages