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 Purchase / Redemption |
Purchase |
There are two main methods by which a sales company offers beneficial interest certificates: namely by underwriting the beneficial interest certificates for a pre-determined amount or by a public offering of the beneficial interest certificates prior to establishment of the trust.
The first method refers to an arrangement in which the sales agent underwrites the beneficial certificates for a pre-determined amount, establishes a trust by transferring to the trustee cash or securities equal to the underwritten amount from its proprietary assets, issues beneficial certificates that represent the trust assets, and sells units in the trust to investors.
The second method refers to an arrangement in which the sales agent first offers the beneficial certificates to investors and receives the subscription money from the investors. Then the subscription money is transferred to the trustee to establish the trust. The whole process usually takes two weeks to one month.
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Redemption |
Redemption of beneficial certificates refers to an arrangement whereby the investor converts the beneficial certificates for cash by selling them back to the distributor. The investor has the right to request redemption of his or her units from the distributor depending on where the investor made the initial purchase of units.
The distributor is obligated to redeem the beneficial certificates no later than 15 days from the date of a redemption request. However, in practice, the distributor settles the redemption request on the third business day from the request for bond investment trusts and hybrid investment trusts that do not invest their assets in stocks, while it settles the redemption request on the fourth business day for equity investment trusts and hybrid investment trusts that invest their assets in stocks. All redemptions are carried out using the net asset value (NAV) of the third business day from the redemption request. In line with prudent investment principles, the management company usually maintains a portion of trust assets as liquid assets to enable redemption requests to be satisfied without disposal of any securities in the portfolio.
The redemption amount is determined by multiplying the NAV per unit of the investment trust by the number of units to be redeemed minus the redemption fee and applicable tax amount. The applicable NAV for MMFs with mandatory settlement on the same day as the redemption request is the closing NAV per unit on the day prior to the redemption request date. For investment trusts that have a settlement date after the redemption request date, the applicable NAV is calculated using the closing prices of the Korea Exchange on the immediately previous day to the redemption payment date. The redemption fees are charged at the time of the payment of the redemption request by the distributor in accordance with the terms of the trust deed.
For a holding period of less than 90-days for open-end and less than 180-days for closed-end investment trusts, a minimum of 70% of the capital gains has to be charged as a redemption fee. The management company has full discretion over the applicable fee charged for a holding period of over 90-days or 180-days respectively.
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