"What If the KOSPI Plummets?... Record Funds Flow into 'Target Maturity Funds' [Investment Trends]"

Target Conversion Fund Assets Reach 3 Trillion Won
28 Funds Launched in Just Four Months This Year
Important to Note: Target Return Is Not a Guaranteed Return

'Target maturity funds,' which switch investment products to safe assets once the target return is achieved, are being actively launched. Even as capital continues to flow into exchange-traded funds (ETFs), these funds are drawing investor attention by emphasizing their strengths in volatile markets.

According to FNGuide, a fund evaluation firm, the total assets under management (AUM) for domestic target maturity funds reached an all-time high of 3.3011 trillion won as of January 2 this year. This represents nearly a threefold increase from 1.156 trillion won last year and 463 billion won in 2024.

A target maturity fund is a product that sells assets such as stocks and ETFs and switches to a bond-focused portfolio once the preset target return has been achieved. It is characterized by investing up to about 50% in equity-related assets to secure the target return, and then reducing risk from market volatility.

Asset management companies have been steadily launching target maturity funds. In the roughly four months since the start of this year, 28 such funds have been launched. Last year, a total of 61 target maturity funds were introduced to the market. As of April 28, the average return of domestic target maturity funds since the beginning of the year was 8.56%, with a one-year return of 24.36% and a three-year return of 31.80%.

Recently, there has been a series of products achieving their target returns ahead of schedule. KB Asset Management has recently launched the target maturity fund 'KB K-Growth and Governance 50 Target Maturity No.3,' which invests in companies benefiting from government core industries and governance improvement. The first and second series of this fund previously achieved the 7% target return in just 17 and 27 business days, respectively.

'Shinhan Korea Paradigm Target Maturity Fund No.2' from Shinhan Asset Management achieved its 6% target return in just 8 business days after its launch on April 9. The company explained that its strategy of identifying investment opportunities based on structural changes and new growth drivers within industries, rather than traditional sector boundaries, contributed to its strong performance.

However, it is important to note that the target return is not a 'guaranteed return.' The Financial Supervisory Service cautioned at the end of last year that although it is relatively easier to achieve the target early in bull markets, there is the risk of delayed or failed target achievement or losses depending on market conditions. In fact, the risk ratings for target maturity funds range from Grade 1 (very high risk) to Grade 5 (low risk). The investment risk rating is an index ranging from Grade 1 to Grade 6, based on the potential for principal loss and price volatility.

The fund's maturity also varies depending on whether and when the target return is achieved. For example, if a particular target maturity fund achieves its target within six months of inception, the maturity is set at one year. If the target is reached after the first six months from inception, the maturity date is set six months after the target achievement date. Therefore, maturity is extended compared to cases where the target is achieved within six months. If the target is not achieved at all, the maturity is typically three years, so the funds may remain tied up for a longer period.

There is also a drawback in that the structure caps the upside, making it difficult to enjoy additional gains in a rising market. This is because, once the target is achieved, the fund immediately shifts to safe assets, meaning investors cannot benefit from returns exceeding the target in a bull market. Reinvesting to capture the market upside may incur redemption fees from the existing fund, take time for redemption and new subscriptions, and expose investors to the risk of missing the optimal investment window.

Beom Kwangjin, Head of the Retirement WM Division at KB Asset Management, analyzed the popularity of target maturity funds, stating, "In today's market, where there are many variables, these funds pursue timely investments in line with market trends to realize profits, and the accumulation of target conversion experiences driven by the continued market rally since 2024 has played a key role."

Beom further advised, "Most of the recent target maturity funds are bond-mixed products that invest no more than 50% in stocks, making them suitable for customers with a medium-risk and medium-return profile. As these are investment products with the possibility of losses, it is important to consider your own risk tolerance and investment objectives rather than investing blindly."

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