"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 conversion funds,' which switch to safe asset investment products once a target rate of return is achieved, are being actively launched. Even amid the current trend of funds flowing into exchange-traded funds (ETFs), these products are attracting investor attention by leveraging their strengths during volatile market conditions.

According to fund evaluation company FnGuide on April 30, the establishment amount of domestic target conversion funds reached a record 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 conversion fund is a product that, after achieving a preset target rate of return, sells assets such as stocks and ETFs and shifts to a bond-focused portfolio. These funds typically invest up to about 50% of their assets in stocks, confirm the target rate of return, and then reduce risk from market fluctuations.

Asset management companies have been steadily launching target conversion funds. In the first four months of this year alone, 28 target conversion funds were introduced. Last year, a total of 61 such funds hit the market. As of April 28, the average return for domestic target conversion funds was 8.56% year-to-date, 24.36% over one year, and 31.80% over three years.

Recently, a series of funds have achieved their target returns early. KB Asset Management recently launched the target conversion fund 'KB K-Growth and Governance 50 Target Conversion Fund No. 3,' which invests in companies benefiting from key government industries and governance reform. The previously launched No. 1 and No. 2 funds each achieved a 7% target return within 17 and 27 business days, respectively.

Shinhan Asset Management's 'Shinhan Korea Paradigm Target Conversion Fund No. 2' achieved its 6% target return early, only about eight business days after its establishment 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 classifications, contributed to its strong performance.

However, it is important to note that the target rate of return is not a "guaranteed rate of return." At the end of last year, the Financial Supervisory Service stated regarding target conversion funds, "While it is relatively easy to achieve the target early during an uptrend, depending on market conditions, target achievement may be delayed or not reached at all, and there is also the risk of loss." In fact, the risk ratings of target conversion funds vary widely, ranging from Grade 1 (very high risk) to Grade 5 (low risk). The investment risk rating is an indicator divided into six grades, based on the potential for principal loss and price volatility.

The maturity of a fund also depends on whether and when the target rate of return is achieved. For example, if a target conversion fund achieves its target within six months from the establishment date, it matures in one year. If the target is reached after more than six months from the establishment date, maturity is set at six months after the achievement date. Therefore, the maturity is delayed compared to cases where the target is achieved within six months. If the target is not achieved at all, the typical maturity is three years, meaning the funds may be tied up for a longer period.

There is also a limitation in that the upside is capped, making it difficult to enjoy additional gains during a bull market. Because the fund immediately shifts to safe assets upon reaching the target, investors cannot benefit from returns exceeding the target rate during a rising market. If investors wish to reinvest to capture further gains, they may incur fees for redeeming the existing fund, experience delays due to redemption and new subscription processes, and potentially miss the optimal investment timing.

Beom Gwangjin, Head of Retirement WM Division at KB Asset Management, analyzed the popularity of target conversion funds by stating, "In today's investment environment with many variables, timely investments aligned with market flows have enabled investors to realize gains, and the continued market rally since 2024 has helped accumulate experience with target conversions."

He added, "Recently, most target conversion funds have been bond-mixed products that invest no more than 50% in stocks, making them suitable for clients seeking medium risk and medium returns. Since these are investment products that can incur losses, investors should consider their own investment goals and risk preferences rather than investing blindly."

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