Listed 'National Participation Growth Fund': Trading Opens, But Investors May Not Get Full Value

Securities firms are enhancing their trading services for the 'National Participation Growth Fund' to allow investors to more easily cash out their investments, which are typically locked up for five years. The Financial Services Commission has requested that brokerages improve the accessibility and search convenience of their mobile and home trading systems for these funds. This move aims to make it simpler for investors to find and trade their holdings.

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The Financial Services Commission has requested that each securities firm improve accessibility and search convenience so that investors can easily find and trade the National Participation Growth Fund on their mobile trading systems (MTS) or home trading systems (HTS) after it is listed.

The National Participation Growth Fund is a closed-end public offering fund with a five-year lock-up period, meaning investors cannot redeem their investments directly from the financial institution before maturity. However, the Capital Markets Act allows such funds to be listed on exchanges within 90 days of their establishment, enabling trading between investors. Currently, the trading process varies significantly across brokerages, and many investors are unfamiliar with how to trade these funds, prompting the current system improvements.

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If you sell the fund you hold within three years of purchase, you may be subject to recapture of the tax benefits you received.

Despite the increased ease of trading, investors are strongly advised to consider holding onto their funds until maturity unless absolutely necessary. Selling the fund within three years of purchase can lead to the recapture of tax benefits previously granted. To retain benefits like income deductions of up to 18 million won and a 9.9% separate taxation on dividends, investors must hold the fund for at least three years.

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Listed investment trusts generally have lower liquidity than regular stocks, so trading may not occur, or it may occur at a price lower than the net asset value.

Furthermore, the tax benefits for buyers are limited, potentially reducing demand. Mid-term purchasers cannot claim income deductions and only receive separate taxation benefits if they hold the fund for three years or more. This structure makes active trading difficult, as sellers might face recapture of tax benefits while buyers need to ensure a minimum holding period to gain tax advantages. The fund's inclusion of assets like unlisted stocks, which are difficult to value accurately, adds another layer of complexity for investors trying to determine a fair purchase price. The Financial Services Commission acknowledges that listed investment trusts generally have lower liquidity than regular stocks, potentially leading to trades at prices below their net asset value.

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We will prepare and launch a second round (of the fund).