Advice has emerged that, for short-term investments in target-conversion funds, choosing the C class is more advantageous than the A class, which charges a front-end sales fee. As more funds achieve their target returns early, the explanation is that investors should weigh the pros and cons by sales fee structure.
On the 9th, the Financial Supervisory Service guided investors on "Status of public target-conversion funds and investor precautions." A target-conversion fund invests money in risky assets such as stocks and, when it reaches a preset target return, switches its strategy to safe assets such as bonds and manages the fund until maturity.
Recently, investment demand for public target-conversion funds has been on the rise. According to the Financial Supervisory Service, target-conversion fund assets under management reached 3.2 trillion won in the first half of this year. This is a high level compared with 5.2 trillion won last year and 1.4 trillion won in 2024.
In particular, target-conversion funds are increasingly achieving their target returns early. The time to reach the target return was 57 days in the first half of this year, half of 105 days last year.
Among subscribers to funds that achieved early, 71.8% joined A-class funds that collect front-end sales fees. The A class is suitable for long-term investment because it charges sales fees upfront but applies a lower distribution fee rate.
The Financial Supervisory Service (FSS) advised that the A class is not suitable for short-term investors. Instead, it said the C class, which does not collect sales fees and has a higher distribution fee rate, is suitable for short-term investors.
It also emphasized that there is a risk of falling short of the target return due to a time lag at the time of conversion after achieving the target. Even if a fund achieves the target on day T, because the conversion period usually takes about five days, the actual return may be the return on the conversion date (T+n days).
Therefore, it explained that it is important to understand the structure and risk factors of target-conversion funds through the prospectus. The Financial Supervisory Service (FSS) will implement a standard guideline from the 30th so investors can easily grasp the key risks of target-conversion funds. It plans to require clear disclosure of major risk factors, including the risk of principal loss, risks that may arise during the management conversion process, and risks if conditions for conversion such as the target return are not met.