[Real Finance] Stock Market Swings on Middle East Risks... Considering Stable Investment Alternatives

Principal-Protected ELDs and Target-Maturity Funds in the Spotlight

In Volatile Markets, "How Well Can You Preserve Your Assets?" Is Key

As geopolitical tensions originating from the Middle East increase volatility in the domestic stock market, individual investors who had benefited from the KOSPI rally are facing growing concerns. Each time the market swings sharply, the risk of losses grows, leading to continued uncertainty. In such circumstances, bank-issued stable products that may not guarantee high returns but can limit potential losses are drawing attention.

Yonhap News Agency

According to the banking sector on March 11, Equity-Linked Deposits (ELDs) are products designed for those seeking higher returns than ordinary bank deposits while still preserving their principal. ELDs invest customer deposits in safe assets such as government or public bonds to guarantee the principal, and at the same time, allocate interest and other portions to derivatives linked to stock indices like the KOSPI200 or to the share prices of specific companies. Although the expected returns may be lower than those from individual stocks or equity-type products when the market rises further, ELDs offer the opportunity to earn extra returns while protecting the principal. Depending on the product structure, the expected annual returns range from a minimum of 1-3% to a maximum of 3-14%.

However, it is important to carefully examine the product structure. For high-yield types, if the underlying index moves outside a predetermined range even once, the return rate can drop to a lower level. The minimum interest rate may fall below that of regular time deposits, and in a volatile market with sharp fluctuations like recently, the actual return could end up lower than expected.

For example, KB Kookmin Bank's 'KB Star Equity-Linked Deposit Upward Knock-Out Type,' launched at the end of last month, offers a maximum annual return of 14.0% if the KOSPI 200 index rises within 20% of the reference date. However, if the index ever rises or falls by more than 20%, the annual return can be lowered to 2.0%. On the other hand, if investors choose the 'Minimum Interest Rate Guarantee Type,' they are guaranteed an annual return of 2.92% even if the index falls compared to the reference date.

Target maturity funds are also worth noting. KakaoBank’s target maturity fund is structured to automatically switch invested assets to safe assets once a pre-set target return is reached, thereby securing profits and reducing risks from further market volatility. While these products do not guarantee principal, they help reduce the psychological burden for investors who may otherwise miss out on returns by waiting too long—making them especially relevant in the current market environment.

Profits Secured Upon Achieving Target Return

The performance has been solid. According to KakaoBank, the first target maturity fund, 'Achieving Target Return with Policy Benefits,' launched in November last year, reached its 6% target return in just 45 days. The second and third funds, 'Achieving 7% Target with ETFs' and 'Achieving 7% Target with Selected Domestic Stocks,' launched in January this year, also hit their 7% targets in 32 and 23 days, respectively. Thanks to this momentum, cumulative sales for the target maturity fund series exceeded 1.5 billion won within three months of launch.

The main strengths of these products are the convenience and automation enabled through the application (app). Investors can subscribe without visiting a branch and check their return status in real time. Over 90% of all subscribers have opted for the 'automatic withdrawal service,' which automatically terminates the investment and locks in profits once the target is reached. This automation helps mitigate emotional decision-making in volatile markets.

KakaoBank is recruiting for its fourth fund, 'Achieving 7% Target with AI ETFs,' from March 9 to March 16 at 5:00 p.m. This product allocates over 50% of assets to domestic short-term bond-related ETFs, while the remainder is invested in ETFs linked to leading global artificial intelligence (AI) companies in Korea, the United States, and China, thus pursuing both growth and defensive characteristics. The minimum investment amount is 1 million won. Starting on March 17, recruitment will begin for the fifth fund, which will focus on promising global themes.

A banking sector official stated, "In a volatile market, it is more important to know how much you can avoid losing rather than how much you can earn. In an environment where unpredictable shocks like Middle East-related variables occur repeatedly, products with loss-control mechanisms, even at the expense of some upside, can serve as practical wealth management alternatives."

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