"I'd Rather Earn Daily Interest Than Face a Crash"... Investors Fleeing the Stock Market Seek Refuge in Parking-Type ETFs [Personal Finance Trends]

All Top 5 ETFs by Weekly Net Asset Growth Are Parking-Type Products
Interest Accrues Even for a Single Day—Popular for Short-Term Cash Parking
Low Risk of Loss and Usable for Retirement Planning
However, Consider Settlement Lag and Hidden C

With market volatility reaching extreme levels as the stock market repeatedly triggers both buy and sell sidecar mechanisms, investors unable to find suitable investment destinations have been funneling their idle funds into parking-type Exchange-Traded Funds (ETFs). These ETFs are increasingly chosen by investors looking to weather the storm of volatility, as they allow for short-term deposits while providing daily, stable returns.

According to ETF Check on July 16, most of the ETF products that recorded the most notable net asset inflows in the domestic ETF market over the past week were parking-type ETFs. The product that saw the largest increase in net assets was TIGER Money Market Active, which grew by 288.4 billion won. RISE Money Market Active followed with an inflow of 217.7 billion won, and the representative risk-free interest rate-tracking product, TIGER KOFR Interest Rate Active (Synthetic), attracted 198.1 billion won. Additionally, 1Q Money Market Active and KODEX Money Market Active ranked in the top five with net asset increases of 167.6 billion won and 95.5 billion won, respectively. Combined, these five ETFs attracted a total of 967.3 billion won. This means that nearly 1 trillion won in large-scale funds have sought refuge in ultra-short-term safe assets.

An asset management company representative stated, "As the stock market has become extremely unpredictable, many investors have sold their stocks to secure cash. Rather than leaving this cash idle, an increasing number of investors are choosing to park it in parking-type ETFs, where compound interest accrues daily, even for just one day, as they wait for their next chance to enter the market."

Parking-type ETFs are ultra-short-term interest rate products designed to allow investors to park their funds temporarily and withdraw them whenever needed. Like a bank parking account, interest accrues even when funds are deposited for just one day. The risk of principal loss is low, and, like stocks, they can be traded in real time. Some parking-type ETFs are classified as safe assets, making them useful for satisfying the required 30% allocation to safe assets in retirement pension accounts. They can also be purchased through Individual Savings Accounts (ISA), offering tax-saving benefits.

Generally, parking-type ETFs are classified according to the underlying interest rate they track: KOFR (Korea Overnight Financing Rate), CD (Certificate of Deposit) interest rate, money market fund (MMF), or SOFR (Secured Overnight Financing Rate, U.S.). KOFR-type ETFs track ultra-short-term transaction rates secured by government bonds and monetary stabilization bonds. As long as the government does not default, there is virtually no risk of loss—making them the "safest risk-free assets." CD interest rate-type ETFs track the interest rates of CDs issued by commercial banks and are also structured to have virtually zero loss unless rates turn negative. Money market-type ETFs are actively managed by asset management firms investing directly in ultra-short-term, high-quality bonds and corporate paper (CP) to seek additional alpha returns. While their yields can be higher than other parking-type ETFs, the chance of principal loss is also greater. SOFR-type ETFs track the U.S. SOFR rate and allow investors to hold dollar-denominated assets while enjoying high U.S. interest rates, although they are exposed to foreign exchange rate volatility.

While parking-type ETFs are in the spotlight as a safe haven in volatile markets, there are important caveats to consider before investing. The first is that they are not covered by the Depositor Protection Act. While bank parking accounts are legally protected up to 100 million won per financial institution, parking-type ETFs are investment products and thus not eligible for deposit protection. Settlement lags also need to be taken into account. Even after selling an ETF, it takes two business days for the funds to actually be converted to cash and withdrawn, so they are not as liquid as bank parking accounts, where you can access cash instantly. If the purpose is saving for a scheduled expense such as real estate closing or tax payment, or to keep cash ready to buy stocks on a sudden market dip, be sure to factor in this two-day lag when planning your funds.

For ultra-short-term investments, investors should also consider the "hidden costs." Brokerage commissions and spreads between buy and sell quotes are incurred when trading, so if the funds are parked for only a few days, transaction costs could outweigh the interest earned.

This content was produced with the assistance of AI translation services.