Asset Allocation Funds: Activating depressed Fund market

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Hello all! This is Kyoungmin.

Here is a good news for those of you interested in diversifying your investment. Financial Supervisory Service (FSS) allows financial companies to launch ‘Asset Allocation Fund’ in the market as of August, 1. The fund is expected to broaden investment options for investors.

What is Asset Allocation Fund?

The Asset Allocation Fund is a type of funds that makes the operators of financial company to freely decide the following investment criteria: how much proportion of the fund assets would be invested in a certain market. The fund can be operated flexibly through the new system. That is, the financial companies can decide the proportion for fund allocation. Also they can chase their customers’ needs by diversifying the fund products. Previously, the financial authorities had placed a tighter restriction on this area. This was because the authorities believed that not setting the boundaries for minimum/maximum amount for investment proportion would be too risky for financial investors who do not have a sound discernment of choosing the proper funds for their financial status. In other words, the restriction was for the purpose of protecting the investors, considering that the financial market and investors were immature to adopt the system. However, with continuous efforts by the financial authorities trying to make a more transparent funds market, it is now considered more structured and transparent than the past. Accordingly, FSS introduces changes of the current regulation for asset allocation funds.

Types of Asset Allocation Fund

Under the new system, the fund can be sold in the following two ways; ‘proportion-floating funds’ and ‘proportion-fixed funds’. Under the proportion-floating fund system, the financial companies can modify the investment proportion flexibly by considering the market circumstances. The percentage can be changed on basis of the operators’ perspective. However, at the early stage of adopting the proportion-floating system, regulation will limit the investment proportion to protect financial consumers. The regulation is as follows. First, the investment proportion in one sector should be minimum 25 percent and maximum 75 percent. Second, the number of targets for the main investment asset should be two. Last, the number of this new fund is limited by three per a financial company. For more details, please refer to <Table1> at the end of this post. In contrast to the proportion-floating system, the investment proportion cannot be changed under the proportion-fixed fund system once the proportion is set. This is regardless of market fluctuations.

Once more details of the regulation get confirmed within August, you will be able to see these funds being sold pretty soon. It is expected that more demands for various financial services will be supported by FSS in cooperation with FSC. The FSC and the FSS continue to support innovative financial products and services created in the market.

If you have more questions on this issue, please feel free to ask us!

Cheers

Kyoungmin

<Table 1> Details of rules for selling Asset Allocation Funds

 

 

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