"They Say Target Maturity Funds Are a Safe Bet"...Key Investment Precautions

As interest in public target maturity funds has grown, the Financial Supervisory Service issued a notice for investors.

On September 9, the Financial Supervisory Service announced investment guidelines for public target maturity funds. A public target maturity fund is a product that collects funds for a set period, invests in risky assets such as stocks to achieve a target return, and then shifts to safer assets such as bonds for operation until maturity once the target return is reached.

Investors should choose the appropriate fund class considering their expected investment period. It was found that 71.8% of investors in public target maturity funds subscribed to class A, which charges a front-end sales fee. Class A is advantageous for long-term investment because the sales fee is collected in advance and a lower sales commission rate applies, whereas class C does not charge a sales fee but applies a higher sales commission rate, making it suitable for short-term investment. Therefore, investors must carefully consider their expected investment period.

It is also important to recognize that the target return is not a guaranteed return. Achieving the target return early is easier during bullish markets, but depending on market conditions, meeting the target may be difficult. In addition, because public target maturity funds invest in risky assets such as stocks, there is a possibility of loss in some cases.

After shifting assets following target achievement, the actual return may differ from the target return. When the fund transitions to safe assets after reaching the target, the return may fluctuate depending on market conditions during the transition period.

Fund structures and risk factors should also be reviewed in the fund prospectus. To guide investors on key risk factors, the Financial Supervisory Service has established a set of core risk standards for 10 fund types, including public target maturity funds.

Meanwhile, interest in public target maturity funds continues to grow. As the stock index has risen since last year, the period required to reach target returns has shrunk from 505 days in 2022 to 105 days last year and to just 57 days in the first half of this year. The fund’s setting size, which was only 100 billion won in 2022, expanded to 5.2 trillion won last year and reached 3.2 trillion won in the first half of this year.

A Financial Supervisory Service official said, "We will strengthen the requirements for fund registration documents to ensure clear consumer understanding and prevent misunderstandings, and will require distributors to thoroughly explain any fees and burdens associated with sales to customers."

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