Individuals to Invest in Government Bonds from Next Year... Invest 100 Million KRW, Receive 140 Million KRW at 10-Year Maturity

From the first half of next year, individual investors will be able to invest in government bonds. This opens the door for individuals to easily invest in government bonds, which have long been considered the exclusive domain of institutional investors and high-net-worth individuals.

On the 5th, the government announced that it reviewed and approved the "Partial Amendment to the Enforcement Decree of the Government Bond Act" for the introduction of government bonds for individual investors at the Cabinet meeting held at the Government Complex Seoul. Government bonds for individual investors are low-risk, medium-return products limited to individuals, designed to provide a stable investment option and support personal asset formation such as retirement preparation. The plan also reflects opinions that diversification of the demand base is necessary for the continuous smooth issuance of government bonds, as most of the current government bond issuance volume is absorbed by financial institutions.

Specifically, anyone can easily invest in government bonds for individual investors by opening a dedicated account. Subscriptions and purchases can be made by visiting the sales agency's counter or applying online. The minimum investment amount will be set at 100,000 KRW, and the annual purchase limit per person will be set at 100 million KRW.

Considering the purpose of supporting long-term asset formation for the middle class and ordinary citizens, two types will be issued: 10-year and 20-year bonds. Although there were initial expectations that the bonds would be issued as government bonds with maturities of 20 years or more, limited to individuals, the introduction of the 10-year bond is evaluated as lowering the psychological barrier for investors. A government official said, "While individuals can purchase general government bonds, small transactions are not active, so in reality, they often buy at high prices or sell at low prices," adding, "Through the amendment, minimum amounts and bond types were set so that more citizens can invest."

[Image source=Yonhap News]

The government highlighted that government bonds for individual investors are principal and interest guaranteed products with no risk of loss. If the bond is held until maturity, interest calculated with compound interest annually on the coupon rate and additional interest rate will be paid along with the principal. The coupon rate will apply the winning bid rate of government bonds with the same maturity issued in the previous month, and the additional interest rate will be decided and announced monthly considering market conditions. Tax benefits include separate taxation of 14% on interest income up to a total purchase amount of 200 million KRW. For example, if the coupon rate is 3.5%, the pre-tax yield at maturity for the 10-year bond is 41%, with an average annual pre-tax yield of 4.1%.

Transfer of bond ownership is not allowed, but exceptions will be recognized in cases of inheritance, bequest, and compulsory execution. If transferred due to inheritance, bequest, or compulsory execution, the additional interest rate, compound interest, and tax benefits will apply if held until maturity; however, these benefits will not apply if the transferee is a corporation or organization rather than an individual. Early redemption requests can be made starting one year after purchase. This is interpreted as reflecting concerns that individual investors may find it difficult to invest monthly over a long maturity period. However, in this case, additional interest, compound interest, and tax benefits will not apply, and only simple interest at the coupon rate will be applied. Bonds will be issued at face value on the 20th of each month 11 times a year (January to November), and no issuance will occur in December considering the annual government bond issuance limit.

The government stated, "Currently, the issuance and redemption system of the administrative agency (Korea Securities Depository) is being established, and the 2024 issuance plan for government bonds for individual investors will be announced in December," adding, "In January next year, sales agencies will be selected through a public competitive bidding process under the National Contract Act."

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