While investment demand for target-converting funds has increased due to the booming stock market in the first half of this year, concerns are growing over the cost burden on investors as the period required to achieve target returns has shortened.

This is because about 7 out of 10 subscribers chose Class A products, which are advantageous for long-term investment, potentially leading to losses in the event of early redemption.

The Financial Supervisory Service (FSS) released investor precautions for public target-converting funds containing these details today.

Target-converting funds initially invest in risky assets such as stocks, and once a preset target return is achieved, they switch to safe assets like bonds and operate until maturity.

Driven by recent stock price gains, the total amount set aside for public target-converting funds reached 3.2 trillion won in the first half of this year alone, following 5.2 trillion won last year, showing a rapid upward trend.

However, as stock market volatility grew during the first half of the year, the time required to achieve target returns plummeted.

The average period to achieve targets shrank from 249 days in 2024 to 105 days last year, and further down to 57 days in the first half of this year.

The problem is that the majority of investors are choosing a fee structure that is disadvantageous for short-term investments.

It was found that 71.8% of investors in public target-converting funds during the first half subscribed to Class A, which charges an upfront sales commission.

In response, the FSS explained, "Class A collects sales commissions upfront and applies a low sales fee rate, making it advantageous for long-term investments," adding, "It takes more than two years for the total fee ratio to match that of Class C, which has no sales commission and a higher sales fee rate."

The agency also emphasized that because the maturity of target-converting funds changes depending on when the target is achieved and early redemptions frequently occur before maturity, investors must consider the cost burden according to their expected investment period.

In addition, the FSS warned that investors must keep in mind that target returns are not guaranteed returns.

Pointing out that investors should be aware of the possibility that target achievement may be delayed or not met at all, the FSS noted, "Even if the target is achieved, there have been cases where market conditions changed drastically during the conversion period, causing the final return on the actual conversion date to fall significantly short of the target return."

The FSS plans to prepare a "standard draft for core fund risks" targeting 10 funds, including target-converting funds, and implement it starting from the 30th.

(Photo: Yonhap News)