More about the investment statement
The first place to go for information about an investment is the investment statement. This is a plain-English document prepared by the issuer of the securities. Its should give you key information about the investment that you need to make investment decisions.
Every investment statement is set out the same way, with information under 11 headings. This is done to make it easier for you to compare one investment with another.
The headings in the investment statement are questions. Each of these tells you something important about the investment. This is why it is worth taking the time to read this information.
The 11 questions, and the sort of information you can get from them, are:
- What sort of investment is this?
This gives a brief description of the securities being offered - what you are actually buying. It will tell you whether they are shares, debentures, units in a unit trust, etc. - Who is involved in providing it to me?
The names and addresses of people who have important roles in the offer are set out here. This includes the issuer of the securities and any promoters of the offer. It also includes the trustee or statutory supervisor for debt securities and managed funds. These people are appointed to look after investors' interests.
This section also tells you about the main activities of the managed fund or the issuer. This is very important, because when you invest in a company's securities you are really investing in the activities of that company. You should find that information here.
For example, if the investment is in a finance company this part of the investment statement should tell you what types of lending the finance company does, and whether its lending is limited to any particular region or sector (such as property).
Knowing about the activities of an issuer helps you to understand what your money will be used for, which helps you to assess the risks of the investment. - How much do I pay?
Before you buy any security you need to know how much it costs. This part of the investment statement will tell you this. It will also say how payments should be made, and whether you buy the securities with one up-front payment or with several payments over time.
If there is a cooling-off period during which you can change your mind about the securities, this will be disclosed here. - What are the charges?
Fees can make a big difference to the returns you get from an investment. This is particularly so with managed funds, where you pay fees to the people who manage your investment for you.
This part of the investment statement sets out the fees you will pay if you invest. Different investments structure their fees in different ways. Some fees are paid when you first invest, some are charged on an ongoing basis. There may be fees or charges that you have to pay when you sell your investment, or switch to another fund run by the same manager. All these fees must be separately set out here, so you can see what you are paying for.
As well as fees, the costs of running and administering the investment may be paid by investors, or taken out of the funds of the scheme. These charges will also be described here.
If the issuer or anyone else is able to change the level of fees and charges at any time, this must be disclosed.
Where possible, fees have to be set out as dollar amounts. If this can't be done, which is often the case, the investment statement has to say how the fees and charges are calculated. - What returns will I get?
Different investments offer different sorts of returns. Whether or not an investment is right for your needs depends heavily on the returns you can expect from it. You need to know whether or not any return is promised , how returns are made up, and what factors are likely to affect the levels of returns.
Some investments promise to give investors a fixed return, such as the interest on a term deposit or a finance company debenture. Other investments, e.g. managed funds and shares, aim to produce certain returns, whether by capital growth or income, but don't promise a fixed rate. The investment statement must say here whether or not any level of returns is promised to investors. Of course, even if a return is promised, whether or not you receive the return depends on the company being able to pay. See What are my risks below.
The key factors that will determine the returns must be set out here. If you are investing in a managed fund this section should tell you how your return will be affected by the performance of the investments that the fund makes. If you are buying shares you should see the major elements of the company's business that will determine whether or not your investment grows, or returns dividends.
From reading this section you will see that the key factors that determine returns are usually closely related to the main risks of the investment, which are disclosed in the next section of the investment statement.
This part of the investment statement will also tell you whether the returns on your investment are likely to be affected by tax, and how frequently returns will be paid, if this is known.
If anyone has agreed to guarantee the securities, this will be stated here, along with information about the nature and amount of the guarantee, whether there are any conditions attached to it, whether it is secured in any way, and whether the guarantor is associated with the issuer of the securities. - What are my risks?
A good understanding of the risks of an investment helps you to make an informed decision about whether a particular investment is right for you. The principal risks of an investment should be set out in this part of the investment statement. This includes the risks that:- the money you pay will not be paid back in full;
- the returns described in the investment statement will not be received; and
- you may need to pay more money on the investment.
Every investment also has risks that are specific to it, or to the sector in which the issuer operates. These risks come from the particular business activities of the issuer. If you want to build up a balanced mix of investments it is important that you understand the specific risks of each investment, so that you can avoid putting too much money into investments that face the same types of risks. For example, buying a debenture from a finance company that lends mainly on property development exposes you to the risks of the property market. If you also buy an investment in a managed fund that invests mainly in property your exposure to the property sector is increased. - Can the investment be altered?
Sometimes an investment can be changed by an investor, or by the issuer (e.g. the term of a deposit might be able to be extended). If so, the investment statement must describe this, and say whether any fees are charged to change the investment. - How do I cash in my investment?
This tells you whether you can sell your investment, and if there is a charge for this. You can also find out here whether you, the issuer, or anyone else can terminate or cancel the investment at any time, and what you will have to pay for this.
If you can sell your investments, the investment statement must say whether the directors think there is an established market for the securities. If there is an established market (e.g. if the securities are listed on NZX) it is likely to be easier to sell your investments than if there is no such market. - Who do I contact with enquiries about my investment?
This gives the names, addresses and telephone numbers of the people working for the issuer you should contact to ask about the investment. - Is there anyone I can complain to if I have a problem with the investment?
The issuer has to set out a contact person or people who you can complain to about your investment, and the address and telephone number for complaints. It will also say whether you can complain to a trustee or statutory supervisor.
Some issuers belong to industry ombudsmen schemes. Ombudsmen are independent people who you can complain to about your investment, but you can only do this if the issuer of the investment belongs to one of these schemes, such as the Banking Ombudsman. - What other information is available about this investment?
More information about an investment is in the registered prospectus and the financial statements. The investment statement sets out how you can get these documents, free of charge.
Most issuers give investors annual reports, or annual financial statements. You can find out exactly what annual information is available for an investment in this part of the investment statement.
Any other information available from the issuer will also be set out here, along with instructions as to how you can get it and whether you have to pay for it.
All investment statements must answer all these questions. This helps you to compare one investment with another.
Read the investment statement before you commit to an investment. If you don't you may not be aware of important factors that could strongly affect your decision on whether or not to invest.
