[Fund Market Crisis] "Returns Lower Than Savings"... No Solution for Public Offering Fund Revitalization

10-Year Average Return 2.3%
Net Assets Plunge 12 Trillion This Year
Fee Discounts and Tax Benefits
Authorities Deliberate Policy Direction

[Asia Economy Reporter Park Jihwan] Financial authorities are increasingly concerned about revitalizing public offering funds. Although several measures have been proposed to revive the stagnant public offering fund market, they have not yielded significant results. The financial authorities plan to prepare additional measures by the end of the year, but it is expected to be difficult to present a sharp solution. The industry believes that without incentives that investors can directly feel, such as fee discounts and tax benefits, it will be impossible to prevent the contraction of the public offering fund market.

According to the Fund Disclosure of the Korea Financial Investment Association on the 21st, as of the 17th, the total net assets of public offering funds set up domestically, including stocks, bonds, and fund of funds, amounted to 86.4142 trillion won. This is a 12.52% decrease compared to 98.7825 trillion won during the same period last year.

The continuous outflow of funds from public offering funds is primarily due to returns. According to FnGuide, the average annual return of equity-type public offering funds over the past 10 years was 2.3%. This ironic situation means that products with loss risks have lower returns than risk-free products such as the average interest rate on bank time deposits (2.5% per annum).

The policy direction of financial authorities is also focused on improving the returns of public offering funds for this reason. In July, the Financial Services Commission announced measures such as diversifying sales channels beyond banks and securities firms and regulatory improvements to enhance fund management and operational efficiency. The calculation is that lowering sales fees by expanding online fund sales can have the effect of increasing returns accordingly.

However, the industry is skeptical about the effectiveness of measures that do not simultaneously consider fee discounts and tax benefits. A financial investment industry official said, "Even if fees are partially lowered, the impact on the 2% return of public offering funds is minimal," emphasizing, "Tax benefits such as income deductions that can provide separate incentives to investors should be considered together."

Especially, the unprecedented success of individual investors in the domestic stock market this year is a major obstacle to revitalizing public offering funds. In the past, individual investors’ returns were negative or significantly lagged behind institutional investors. This is why investors consistently preferred indirect investment methods by entrusting funds to professional investment companies.

This year, the situation has reversed. Stocks heavily purchased by individual investors are delivering performance that greatly exceeds the returns of stocks favored by institutional investors. According to data requested by Lee Jung-moon, a member of the Democratic Party of Korea, from the Korea Exchange, the average increase rate of the top 10 stocks by net purchase by individuals in the KOSPI market as of the 15th was 32.4% compared to the end of last year. Compared to the 17.4% increase rate of the top 10 stocks by net purchase by domestic institutional investors during the same period, individual investors’ returns are nearly twice as high.

An asset management company official pointed out, "The perception that direct investment can expect much higher returns than earning 2% through indirect investment methods is rapidly spreading," adding, "Without clear incentives, the path to revitalizing the public offering fund market seems difficult."

Financial authorities are also deeply concerned. They judge that if measures are prepared indiscriminately to increase returns, the 'investor protection' aspect, which is the original purpose of public offering funds, may become lax. The key is how to devise incentives that attract investors to public offering funds by appropriately satisfying both aspects.

Hwang Sewoon, a research fellow at the Korea Capital Market Institute, argued, "Public offering funds include many elements of diversified risk management as investor protection devices," adding, "If regulations are loosened by emphasizing only the return factor, a series of side effects like the recent private fund redemption suspension incidents may occur."

A financial authority official said, "We are discussing various measures to revitalize public offering funds, such as expanding sales channels and addressing fee issues, aiming for an announcement within the year," but added, "However, the tax benefit part requires consultation with the Ministry of Economy and Finance and others, so it is difficult to present it solely for public offering funds immediately."

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