Second National Growth Fund to Launch in September, Offering Another Tax Break Opportunity

South Korea is set to introduce a second "National Growth Fund" in September, with a target size of 600 billion won (approximately $430 million USD). This initiative follows the rapid sell-out of the first fund, offering another opportunity for financial consumers to benefit from tax advantages.

The Financial Services Commission has begun selecting fund managers for the second phase, which will mirror the first in scale. A significant portion, over 60%, of the fund's capital will be channeled into 12 strategic industries, including semiconductors, secondary batteries, bio, artificial intelligence (AI), defense, and robotics. Notably, at least 30% will be allocated to unlisted companies and those listed on the KOSDAQ under the technology special listing track, providing crucial new capital.

The primary draw for investors is the tax incentive package, similar to the first fund. Participants can receive income deductions of up to 40% (12 million won) for investments under 30 million won, with decreasing rates for higher investment amounts, capped at a maximum deduction of 18 million won. Additionally, a 9.9% separate dividend income tax rate applies. However, investors must be mindful of the overall annual income deduction limit of 25 million won, which includes other deductions like credit card usage and housing funds.

The fund operates as a closed-end structure with a five-year maturity, making early redemption difficult. While shares may be transferable on the Korea Exchange after listing, liquidity might be a concern. Investors who redeem or transfer shares within three years of investment will forfeit all tax benefits. Furthermore, the fund is not principal-protected; while the government acts as a subordinated investor to absorb initial losses, investors will bear losses exceeding 20% of the invested amount.