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

'Target conversion funds,' which switch to safer assets once the target rate of return is achieved, are being actively launched. Even as funds continue to flow into Exchange Traded Funds (ETFs), these products are attracting the attention of investors by highlighting their strengths in volatile market conditions.

According to fund evaluation firm FnGuide on April 30, the total assets of domestic target conversion funds reached a record high of 3.3011 trillion won as of January 2 this year. This figure has almost tripled from 1.156 trillion won last year and 463 billion won in 2024.

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A target conversion fund is a product that switches to a bond-focused portfolio by selling assets such as stocks and ETFs when the pre-set target rate of return is reached. The distinctive feature is that up to approximately 50% of the fund is invested in stock-related assets to secure the target return, after which risk is reduced in response to 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 have been introduced. Last year, a total of 61 such funds were launched. As of April 28, the average rate of return for domestic target conversion funds stood at 8.56% year-to-date, 24.36% over one year, and 31.80% over three years.

Recently, several products have achieved their target returns ahead of schedule. 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 achieved their 7% target returns in just 17 and 27 trading days, respectively.

The 'Shinhan Korea Paradigm Target Conversion Fund No. 2' from Shinhan Asset Management reached its 6% target return in just eight trading days after its launch on April 9. The company explained that this was due to a strategy that goes beyond traditional industry classification to identify investment opportunities based on structural changes and new growth drivers within industries.

However, it is important to note that the target rate of return is not a 'guaranteed return.' The Financial Supervisory Service stated at the end of last year, "While it is relatively easy to achieve early targets in a rising market, depending on market conditions, there may be delays in achieving targets, failure to achieve targets, or even the risk of loss." In practice, the risk grade of target conversion funds is distributed from grade 1 (very high risk) to grade 5 (low risk). The investment risk grading system classifies funds from grade 1 to grade 6 based on the possibility of principal loss and price volatility.

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The maturity of the fund also varies depending on whether and when the target return is achieved. For example, if a target conversion fund achieves its target within six months from the inception date, the fund matures in one year. If the target is achieved after six months from the inception date, maturity occurs six months after the achievement date. This means the maturity is delayed compared to achieving the target within six months. If the target is not achieved at all, the typical maturity period is three years, so funds may be tied up for a longer period.

There is also a structural limitation in that it is difficult to enjoy additional returns in a rising market. Because assets are switched to safer investments as soon as the target is reached, investors cannot benefit from returns exceeding the target rate during a bull market. If investors wish to reinvest to catch an uptrend, they may incur redemption fees for existing funds, face delays in redemption and new subscriptions, and potentially miss the optimal timing for investment.

Beom Gwangjin, Head of Retirement WM at KB Asset Management, analyzed the popularity of target conversion funds by saying, "In today's market with many variables, timely investment in line with market flows to realize profits and accumulated experience in target conversion amid a market uptrend sustained since 2024 have been the main contributors."

He also advised, "Most recent target conversion funds are bond-mixed types with equity exposure below 50%, making them suitable for clients with moderate risk and moderate return preferences. However, since these are investment products that may incur losses, investors should consider their own risk tolerance and investment objectives rather than investing blindly."

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