National Participation Growth Fund Worth 600 Billion Won Launches on May 22: "Up to 18 Million Won Annual Tax Deduction and 9% Separate Taxation"

Starting from May 22, the general public will be able to subscribe to the "Public Participation Growth Fund," a public-participation-type fund created with a scale of KRW 600 billion. The individual investment limit is set at KRW 200 million per person, with income tax deductions of up to KRW 18 million and a 9% separate taxation benefit on dividend income. However, early redemption is not allowed for five years after subscription. Additionally, 20% of the fund's sales, amounting to KRW 120 billion, will be allocated to individuals with earned income of KRW 50 million or less.

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The Financial Services Commission announced on May 6 that it will launch the "Public Participation Growth Fund" on May 22, in which the public can directly participate in raising a portion of the funds. This initiative aims to share the long-term operational performance of the National Growth Fund, which has been created with a scale of KRW 150 trillion plus alpha to foster advanced strategic industries. Sales will be conducted on a first-come, first-served basis for three weeks through 25 banks and securities firms.

The Public Participation Growth Fund will be formed by combining KRW 600 billion raised from the public with KRW 120 billion in government funds. If the subscription amount falls short, the Korea Development Bank will contribute an additional KRW 30 billion from the Advanced Strategic Industry Fund. The fund structure follows a "master fund-sub fund" model. Public funds are pooled to create a master fund, which is then invested into 10 sub funds. Publicly offered funds, managed by three asset management companies-Mirae Asset, Samsung, and KB Asset Management-will share the investment performance (returns) of the 10 sub funds. Regardless of which public fund investors subscribe to, they will be investing in the same portfolio.

The primary investment targets of the Public Participation Growth Fund are companies related to advanced strategic industries such as semiconductors, secondary batteries, and artificial intelligence (AI). Each sub fund must invest at least 60% of its capital in these industries. Of this, at least 30% must be invested in unlisted companies (at least 10%) and KOSDAQ technology-special listing companies (at least 10%) via new capital supply methods (such as rights offerings or mezzanine investments). Investments in KOSPI-listed companies recognized as primary investment targets are limited to within 10%. The remaining 40% can be managed autonomously to enhance profitability and stability.

Investors are also provided with tax benefits. Based on the investment amount, there is a 40% income tax deduction for up to KRW 30 million, 20% for KRW 30-50 million, and 10% for KRW 50-70 million, with a maximum deduction limit of KRW 18 million. In addition, dividend income generated over five years after investment is eligible for a 9% separate taxation benefit.

However, to receive the tax benefits, investors must subscribe through a designated account, and those who were subject to comprehensive financial income taxation even once between 2023 and 2025 are not eligible. The investment limit for a designated account is KRW 200 million over five years, with an annual subscription limit of KRW 100 million. If subscribing through a regular account without tax benefits, the annual investment limit is KRW 30 million.

Considering that the general public is participating in long-term venture capital investments, the government has also introduced a loss-absorption mechanism. The government will cover up to 20% of losses for each sub fund. The total management and sales fee for the Public Participation Growth Fund is about 1.2% per year (about 1.0% for online transactions). If the cumulative return over five years exceeds 30%, the asset management companies will receive additional performance-based compensation. The primary target is to achieve an average annual return of 6%.

A Financial Services Commission official commented, "The fund is a financial investment product that carries the risk of principal loss, and it is difficult to predict returns in advance. However, the government will absorb up to 20% of losses for each sub fund, and tax benefits such as income deductions will enhance investors' effective returns."

The fund is a closed-end product with a five-year maturity, and early redemption is not possible. However, listing on the exchange is mandatory within 90 days of establishment, so it can be traded on the market after listing. Note that if the fund is transferred within three years of investment, the tax benefits may be clawed back.

KRW 120 billion, or 20% of the fund's sales, will be allocated exclusively to low-income individuals. To qualify as low-income, one must have earned income of KRW 50 million or less, and if there is any other comprehensive income, it must be KRW 38 million or less. Any remaining allocation not used within two weeks will be offered to general investors starting from the third week.

Meanwhile, the three public fund managers selected are Mirae Asset, Samsung, and KB Asset Management, while the government master fund will be managed by Korea Growth Investment Management. The sub funds will be managed by 10 companies: DS, Mirae Asset, Life Asset, Midas Asset, Timefolio, Korea Investment Value Asset, The J, Suseong, Orion, and KB Asset Management.

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