By Yoon Tai-soon
Chairman of Asset Management Association of Korea
The domestic fund market has recently exceeded 266 trillion won in total assets under management (AUM), and has reached nearly 300 trillion won in net asset value. This demonstrates a significant shift in investors' sentiment that had shunned fund investment even four or five years ago.
The local fund market, which had once prospered on the back of the ``Buy Korea'' boom in early 1999, got into a big trouble by halving the size of market in just one and a half years due to the collapse of Daewoo corporate bonds. Since then, hit by SK Global's account fraud and credit card companies' liquidity problems in 2003, the market had hovered at around 150 trillion won in AUMs.
In the meantime, Indirect Investment Asset Management Business Act (IIAMBA) established to consolidate fund related laws in 2004 has put stricter criteria for risk management and disclosure requirements, thus enhancing the credibility of funds.
In addition, new type of funds have sprung up as the range of permissible investment assets has expanded to real estate, derivatives, and fund of funds from stocks and bonds. Major banks started to launch fund distribution in earnest amid a continuing low-interest rate trend and weakening "flight to safety" that has been around since the financial crisis that battered Korea in 1997.
In particular, funds gained more popularity among retail investors thanks to banks' aggressive marketing activities to promote fund investing via installments or regular savings plan (RSP). Monthly payments of 100,000 or 200,000 won made funds, traditionally viewed as the exclusive preserve for the wealthy, an affordable investment, and helped those who were comfortable with principal protected products offered by banks to turn their eyes towards funds.
The availability of RSPs has become a driving force behind the steady inflow of money into fund markets, especially equity funds since 2004.
The AUMs of RSPs, which stood at 6.5 trillion won at the end of March 2005, when the Asset Management Association of Korea (AMAK) started to compile data, has reached 34.5 trillion won as of the end of June. And the number of RSP accounts, which is around 9.82 million, is expected to exceed 10 million in the near future.
Although RSPs in the overall funds market accounts for only 12 percent in AUMs, it represents more than one third in the equity fund sector _ AUMs total 79 trillion won.
The size of the domestic funds market has continued to grow by more than 10 percent in the past two years from 187 trillion won in 2004 to 204 trillion won in 2005, to 235 trillion won in 2006, and to 266 trillion won as of August 2007. The number of fund accounts has increased greatly from 3.61 million in 2003 to 15.88 million as of the end of June in just three years. This leads us to believe that every household owns one fund account on average by comparing the number of accounts with the estimated number of households (15.99 million) in 2005.