PRIIPs SRI and KID Explained: The 1-7 Risk Indicator, Scenarios and Costs

Before you buy a fund, an ETF, a structured product or an insurance-based investment as a retail investor in the EU, you must be given a Key Information Document (KID). Its headline number is the summary risk indicator (SRI), a score from 1 to 7. This guide explains how the PRIIPs SRI is built, how to read the performance scenarios and cost tables, and what changed for UCITS and ETF investors.

What the PRIIPs Regulation is and what it covers

PRIIPs stands for Packaged Retail and Insurance-based Investment Products. The framework is Regulation (EU) No 1286/2014, which has applied since 1 January 2018. The calculation rules are in Commission Delegated Regulation (EU) 2017/653, the regulatory technical standards (RTS). Delegated Regulation (EU) 2021/2268 revised them, with effect from 1 January 2023.

The manufacturer must publish a KID in a fixed format, and whoever advises on or sells the product must give it to the retail investor before the investor is bound. A common methodology lets you compare products side by side. The rules generally cover:

• investment funds offered to retail investors, including UCITS funds and UCITS ETFs;
• structured products and structured deposits;
• derivatives such as options, futures and CFDs;
• insurance-based investment products, such as unit-linked life insurance.

Individual shares, standard fixed-rate bonds, ordinary deposits, non-life insurance and recognised pension products are generally out of scope.

What a KID contains

A KID is limited to three sides of A4 when printed. Its sections always come in the same order:

• Purpose and Product: name, manufacturer, supervisor and date, plus a comprehension alert for complex products.
• What is this product? Type, objectives, intended investor and term.
• What are the risks and what could I get in return? The SRI and the performance scenarios.
• What happens if the manufacturer is unable to pay out?
• What are the costs? Two standard tables.
• How long should I hold it and can I take money out early? The recommended holding period (RHP).
• How can I complain? and Other relevant information. For funds, this last section links to past performance and earlier scenario calculations.

The PRIIPs SRI: what the 1-7 score measures

The SRI combines market risk (how far the value can fall when prices move) and credit risk (the chance that the issuer or a guarantor cannot pay). It assumes you hold the product for the RHP, which is stated with the scale; the actual risk can be quite different if you cash in early. Each class has fixed wording:

SRI	KID wording (“… risk class”)	Potential losses rated as
1	the lowest	very low
2	a low	low
3	a medium-low	medium-low
4	a medium	medium
5	a medium-high	medium-high
6	the second-highest	high
7	the highest	very high

Risks the number does not capture are described below the scale: currency risk, material liquidity risk and, where you may have to make further payments, a warning that the total loss could significantly exceed the amount invested.

Market risk measure (MRM) and VaR-equivalent volatility

The market risk measure starts from a value at risk (VaR) at a 97.5% confidence level over the RHP. That VaR is converted into an annualised “VaR-equivalent volatility” (VEV). The method depends on the product category:

• Category 1: products where you could lose more than you invest, and derivatives such as options, futures and CFDs, go straight to MRM class 7. Products priced less often than monthly, or without an appropriate benchmark or proxy, get class 6.
• Category 2: products with a linear exposure, such as most funds and ETFs. The VaR comes from a Cornish-Fisher expansion of the past five years of returns (at minimum two years of daily, four years of weekly or five years of monthly prices).
• Category 3: non-linear payoffs, typically structured products. The VaR comes from simulated (bootstrapped) paths.
• Category 4: products partly driven by factors not observed in the market, such as insurance with profit participation.

For Category 2, σ is the standard deviation, μ1 the skew and μ2 the excess kurtosis of the observed log returns. N is the number of trading periods in the RHP and T the RHP in years:

VaR (return space) = σ√N × (-1.96 + 0.474 × μ1/√N - 0.0687 × μ2/N + 0.146 × μ1²/N) - 0.5 × σ² × N

VEV = (√(3.842 - 2 × VaR) - 1.96) / √T

The coefficients are the Cornish-Fisher adjustment at the 2.5% quantile (z = -1.96), which corrects a normal distribution for skew and fat tails. With normal returns, the VEV is essentially the annualised volatility. The VEV sets the market risk class (old UCITS scale for comparison):

Class	PRIIPs MRM band (VEV)	Old UCITS SRRI band (volatility)
1	below 0.5%	below 0.5%
2	0.5% to 5%	0.5% to 2%
3	5% to 12%	2% to 5%
4	12% to 20%	5% to 10%
5	20% to 30%	10% to 15%
6	30% to 80%	15% to 25%
7	80% and above	25% and above

Credit risk measure (CRM)

Credit risk matters when the payout depends on an issuer or guarantor staying solvent, as with a structured note issued by a bank. The issuer’s rating is mapped to a credit quality step, adjusted to the maturity or holding period, and then to a CRM class from 1 (strongest) to 6 (weakest). The rules treat a UCITS or AIF itself as carrying no credit risk; its underlying exposures are assessed where necessary. For a typical equity UCITS ETF, the SRI therefore equals the market risk class.

How market risk and credit risk classes combine into the SRI

A fixed table in Annex II of the RTS gives the SRI:

CRM / MRM	1	2	3	4	5	6	7
CRM 1	1	2	3	4	5	6	7
CRM 2	1	2	3	4	5	6	7
CRM 3	3	3	3	4	5	6	7
CRM 4	5	5	5	5	5	6	7
CRM 5	5	5	5	5	5	6	7
CRM 6	6	6	6	6	6	6	7

Read the credit class as a floor. With CRM 1 or 2, the SRI equals the market risk class. CRM 3 lifts it to at least 3, CRM 4 or 5 to at least 5, and CRM 6 to at least 6. MRM 7 always gives 7.

Worked example: an equity ETF and a structured note

Take a hypothetical equity UCITS ETF with a five-year RHP. Its daily returns over five years show a standard deviation of 1.1%, a skew of -0.4 and an excess kurtosis of 3. With 252 trading days a year, N = 1,260 and annualised volatility is about 17.5%.

• σ√N = 0.011 × √1,260 ≈ 0.390, and the VaR in return space is about -0.844.
• VEV = (√(3.842 + 1.687) – 1.96) / √5 ≈ (2.351 – 1.96) / 2.236 ≈ 17.5%.
• 17.5% sits in the 12% to 20% band: MRM class 4. With no credit risk at fund level, the SRI is 4.

Over a multi-year RHP, the skew and kurtosis terms are divided by √N and N, so they barely matter: normal returns would give 17.47% instead of 17.51%.

Now take a structured note whose payoff gives MRM class 3. With an issuer in CRM class 3, the SRI is 3. With an issuer in CRM class 4, it becomes 5 for the identical payoff.

SRI vs SRRI (KID vs KIID): why equity funds often show 4, not 6

Before 2023, UCITS funds used the two-page KIID and its synthetic risk and reward indicator (SRRI), based on annualised volatility, typically from five years of weekly returns. The SRI’s bands are much wider at the top. A broad equity fund with 15% to 20% volatility commonly shows 4 on its KID where its KIID showed 6. The SRI also adds credit risk and a holding-period VaR. The fund did not become safer; the scale changed, so compare SRIs only with SRIs.

Performance scenarios: what the four numbers mean

The KID shows what you might get back after costs in four scenarios: stress, unfavourable, moderate and favourable. The figures are usually for an investment of 10,000 in the product’s currency, as an amount and as an average yearly return. They are given after 1 year and at the end of the RHP, with an intermediate point for long holding periods.

Since 2023, most funds take the unfavourable, moderate and favourable scenarios from the worst, median and best results over rolling periods equal to the RHP. The data covers the past ten years, or more when the RHP exceeds five years. A benchmark or proxy fills gaps in the product’s history. A footnote dates each scenario’s period.

The stress scenario is statistical rather than historical, so it has no date. It applies the Cornish-Fisher formula at an extreme percentile, using a “stressed” volatility from the most turbulent stretches of history. Since 2023 it may not show a better result than the unfavourable scenario; if the formula gives a better figure, the unfavourable value is shown instead. None of these figures is a forecast.

How costs are shown in the KID

The “What are the costs?” section has two tables:

• Costs over time: total costs in money and the annual cost impact (how much all costs reduce your average yearly return), after 1 year and at the RHP. The KID assumes a 0% return in year 1 and the moderate scenario for longer periods.
• Composition of costs: one-off entry and exit costs; ongoing costs (management fees and other administrative or operating costs, plus transaction costs); incidental costs such as performance fees and carried interest.

One-off costs weigh most on short holdings. A simplified illustration: 10,000 invested, a 1% entry cost, 0.5% ongoing costs a year, 0% return in year 1 and 5% a year as the moderate scenario.

	Exit after 1 year	Exit after 5 years (RHP)
Value with no costs	10,000.00	12,762.82
Value after costs	9,850.50	12,322.45
Total costs	149.50	440.36
Annual cost impact	1.50%	0.73% a year

Over five years the entry cost is spread out, so the annual cost impact roughly halves. Real KIDs apply the detailed RTS conventions.

The KID shows the product’s costs. Your broker’s commissions, custody and currency-conversion fees appear in its separate MiFID II cost disclosure, and the bid-ask spread on an exchange comes on top. For an ETF bought on an exchange, the KID often shows no entry or exit charge, because you trade with other investors rather than with the fund.

What PRIIPs changed for ETF and UCITS investors in the EU

UCITS funds were exempt until 31 December 2022, because they already had the KIID. Since 1 January 2023, UCITS funds and UCITS ETFs offered to retail investors provide a PRIIPs KID instead. As a result:

• the SRRI gave way to the SRI and its different bands;
• the past-performance bar chart moved out of the document, behind a link;
• performance scenarios and an RHP appeared, and costs are shown in money as well as percentages;
• share classes in another currency can carry the currency-risk warning.

Because most US-domiciled ETFs publish no PRIIPs KID, EU brokers generally do not offer them to retail clients. For broad index exposure, many European investors use UCITS ETFs domiciled in Ireland or Luxembourg, which publish KIDs. For the allocation side, see our guide to building an ETF portfolio.

When you open a KID, check:

1. the RHP against how long you actually expect to hold;
2. the SRI together with the warnings below it;
3. the unfavourable and stress rows, not only the moderate one;
4. the annual cost impact at the RHP across similar products;
5. what happens if the manufacturer cannot pay, especially for structured products.

What may change next

The Commission’s Retail Investment Strategy, proposed in May 2023, includes amendments to modernise the KID, including for digital use. The Parliament and the Council announced a provisional agreement in December 2025. The changes apply only from the dates set in the final texts; until then, the rules above apply.

PRIIPs SRI and KID: frequently asked questions

What does SRI mean in a PRIIPs KID?

Summary risk indicator: a class from 1 (lowest) to 7 (highest) combining market risk and credit risk over the recommended holding period.

How is the PRIIPs SRI calculated?

For most products, the VEV at 97.5% over the RHP sets the market risk class, and the issuer’s credit quality sets the credit risk class. The SRI comes from the fixed table above, where the credit class acts as a floor.

What does a summary risk indicator of 5/7 mean?

It is the medium-high class. Either the VEV is between 20% and 30%, or a credit risk class of 4 or 5 has lifted a lower market risk class to 5.

Why can’t EU retail investors buy US ETFs?

Most US-domiciled ETFs publish no PRIIPs KID, and a KID must be provided before a retail sale, so EU brokers usually block these purchases for retail clients.

Why is the stress scenario sometimes equal to the unfavourable scenario?

Since 2023 the stress figure may not be better than the unfavourable one. If the calculation gives a better stress result, it is capped, so both rows show the same amount.

Does PRIIPs apply to individual stocks?

No. A single company’s shares have no KID and no SRI; their risk depends on the business and the price paid. Our guide to the intrinsic value of a stock explains how to assess that price.

Educational content, not investment advice.