 Overview |
Classification of funds |
Investment trusts are divided into two categories based on the allowance of additional issues of units.
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A. Open-end Funds |
In this type of investment trust, new issues of units may be made upon a request from investors, and the amounts raised are added to the initial establishment amount and managed together as a single investment trust. This type of investment trust is the most common type of trust and generally there is no termination date.
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B. Closed-end Funds |
In this type of investment trust, the size of the trust is fixed - new issues of units cannot be made after the trust¡¯s initial establishment. At the funds establishment, the fund management company determines the life of the trust to a minimum period of six months.
Funds can be further categorized into types of investment trusts:
Classification by Investment Objective, Investment Trust with Tax Benefits and Investment Trust with Special Structure
Types of Investment Trusts
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A. Classification by Investment Objective |
The four main types of investment trusts are (i) equity investment trusts, which invest more than 60% of their total assets in equities or equity related securities such as KOSPI 200 index futures and options; (ii) bond investment trusts, which invest more than 60% of their assets in bonds or interest rate futures; (iii) MMFs, which mainly invest in short-term financial products such as CPs and CDs; and (iv) hybrid investment trusts, which are not classified under any of the above categories.
Equity funds can further be classified as growth-type, growth income-type, and income-type based on their investment plan. The standard trust deed for equity-type trusts allows these kinds of trusts to invest in KOSPI 200 index futures and options up to an amount equal to the permitted level of stock investment of the trust.
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| Classification |
Criteria |
| ¤ıGrowth-type |
An investment trust that is required under the terms of its trust deed or investment plan to invest more than 70% of its net assets in equities. |
| ¤ıIncome-type |
An investment trust that cannot under the terms of its trust deed or investment plan invest more than 30% of its net assets in equities. |
| ¤ıGrowth Income-type |
An investment trust that aims under the terms of its trust deed or investment plan to balance growth and income by restricting investment in equities to between 30% - 70% of net assets. |
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B. Investment Trust with Tax Benefits |
In order to promote long-term savings, retirement planning, or some specific industries, the government provides some investment trusts with exemption from or reduction of withholding taxes.
| Classification |
Contents |
| ¤ıPersonal Pension Fund |
Taxable income reduction (40% of invested amount), no withholding tax |
| ¤ıPension Fund |
Taxable income reduction (100% of savings amount up to 2.4 million won per year) |
| ¤ıEmployees' Equity Fund |
Income tax reduction (5% of savings amount), no withholding tax |
| ¤ıSeparate Taxation Fund |
Shares of the fund can choose the tax rate of 30% of the income from the fund, which is then excluded from their total annual income for consolidated tax |
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Tax-benefit Total SavingsTax reduction on income gains (tax rate for taxable income
Fund, Old-age Pensionreduced from 22% to 10%)
Fund
Tax-exempt High-yieldNo withholding tax
High-risk Investment Trust
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C. Investment Trust with Special Structure |
1) Umbrella fund
A group of investment trusts that are distinct in character and established under the same arrangement that allow investors to switch between the funds according to the market conditions without paying redemption or switching fees.
2) Fund of Funds
This type of investment trust is part of an arrangement in which the trust assets of several sub-investment trusts invest in the beneficial certificates of one or more parent investment trusts that are distinct in character. Each of the sub-investment trusts purchases the beneficial certificates of the appropriate parent investment trusts in an appropriate amount, in accordance with the respective investment objectives of the trust. The actual management of assets of the sub-investment trusts is effected by the management of the parent investment trusts, which hold simplified portfolios; this arrangement allows for more efficient and cost-effective management than would be possible if a trust managed its own portfolio directly.
3) ETF (exchange traded funds)
It is an index-based investment fund that is listed and traded on the stock exchange or KOSDAQ market. Establishment of these funds has been permitted since October 2002. An investment trust may invest up to 30% of its total assets in ETFs.
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