Financial Knowledge
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From IPOs, KOSDAQ venture funds, mezzanine, pre-IPO and SPACs to private funds, stocks, tax, investor protection, bonds and asset allocation — 10 topics and 500+ questions and answers centred on the areas BNB has invested in. Our AI assistant adds our company FAQ, answering from a base of 1,000+ Q&As.
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527 questions
01
IPOs & IPO Shares
This section summarizes what you should know before investing in IPO shares, including the initial public offering (IPO) process and listing requirements, book-building (demand forecast), offer pricing and allocation methods, lock-ups and the risk of share price swings after listing. Offering terms differ from one offering to another, so be sure to check the company's securities registration statement and prospectus.
QWhat is an IPO (initial public offering)?
An IPO is the process by which a company first offers and sells its shares to the general public, for example in order to list on a stock market. It is carried out either by offering newly issued shares to investors or by selling existing shares held by a small number of shareholders to the public so that they are widely held. This disperses ownership and enhances the company's ability to raise funds.
Source: Bank of Korea Economic Glossary: Initial Public Offering
QDo 'going public' and 'listing' mean the same thing?
They are often used interchangeably, but strictly speaking they differ. Listing means granting the securities of a company that meets the exchange's requirements eligibility to be traded on the KOSPI, KOSDAQ or KONEX market, whereas going public means dispersing shares through a public offering (offering or sale) and regularly disclosing information about the company. Listing and going public have been separated since April 1999, and the exchange now substantively conducts listing reviews.
Source: Korea Exchange 2025 KOSPI Market Listing Review Guidebook (pp. 1-19)
QOnce a company is listed, does the Korea Exchange guarantee its value?
No. Listing merely allows the shares of a company that meets the requirements to be traded on the stock market; it does not mean that the Korea Exchange guarantees the value of those shares. After listing, the share price changes according to the company's performance and market conditions, and responsibility for investment decisions lies with the investor.
Source: Korea Exchange 2026 Understanding and Practice of KOSDAQ Listing Review (pp. 1-17)
QWhy do companies go public?
Listing allows a company to raise funds through a public offering and makes it easier to raise money afterwards through means such as public capital increases. It also boosts the company's publicity and credibility, helps in recruiting talented people, and brings benefits such as tax advantages. On the other hand, a listed company takes on greater responsibilities, such as disclosure obligations and scrutiny by investors, the market and regulators.
Source: Korea Exchange 2026 Understanding and Practice of KOSDAQ Listing Review (pp. 1-17)
QWhat are the steps in an IPO?
An IPO generally proceeds in this order: due diligence by the underwriter, preliminary listing review by the Korea Exchange, review and acceptance of the securities registration statement by the Financial Supervisory Service, book-building (demand forecast) among institutional investors, pricing, subscription and allocation, and listing and the start of trading. The underwriter proposes an indicative offer price range based on its due diligence and sets the final offer price reflecting the book-building results.
QWhat is the preliminary listing review and how long does it take?
The preliminary listing review examines whether a company seeking to list meets the exchange's formal and qualitative requirements. For the KOSPI market, the exchange notifies domestic companies of the result within 45 business days of receiving the application, and it advises that it takes about 4 months from applying for the preliminary review to the new listing. A fast track shortens the review period to 20 business days for high-quality companies that meet certain requirements, and the period may be extended if additional review is needed.
Source: Korea Exchange 2025 KOSPI Market Listing Review Guidebook (pp. 20-31)
QWhat does the listing review look at?
The exchange first checks the formal review requirements, which concern a company's outward profile, such as the length of its business operations, its size, share distribution and business performance. A company that does not meet the formal requirements cannot apply for the preliminary review. If they are met, the exchange comprehensively reviews qualitative requirements such as business continuity, management transparency, management stability and investor protection.
Source: Korea Exchange 2025 KOSPI Market Listing Review Guidebook (pp. 100-113)
QRoughly what are the KOSPI market listing requirements?
According to the Korea Exchange's 2025 guidebook, the requirements include at least 3 years of business operations since incorporation, equity capital of KRW 30 billion or more, and at least 1 million shares to be listed. In addition, there must be at least 500 general shareholders, and the company must meet share distribution requirements, such as the proportion of shares held by general shareholders, as well as one of the business performance requirements based on revenue, profit, market capitalization and the like. The detailed criteria may be amended, so check the Korea Exchange listing regulations.
Source: Korea Exchange 2025 KOSPI Market Listing Review Guidebook (pp. 100-113)
QHow do KOSDAQ listing requirements differ from KOSPI's?
The KOSDAQ market centers on small and medium-sized, venture and growth companies; since 2018, requirements on business history, size and capital impairment have been abolished, and the formal requirements have been revised to reflect future growth potential. Listing tracks are divided into general companies (including venture companies), assessed on criteria such as profitability, revenue, market valuation and growth, and technology growth companies, which obtain a technology assessment or a recommendation from a listing sponsor. Share distribution requirements, such as having at least 500 minority shareholders, must also be met.
Source: Korea Exchange 2026 Understanding and Practice of KOSDAQ Listing Review (pp. 1-17)
QWhat kind of market is KONEX?
KONEX is a market opened in July 2013 to give early-stage small and medium-sized enterprises opportunities to raise funds. Companies can list in various ways, including public offerings, private placements and direct listings, and the burden after listing is eased, for example through exemption from filing periodic reports and simplified ad hoc disclosure. Governance-related burdens are also low; for instance, companies are exempt from the obligation to appoint outside directors and a full-time auditor.
Source: Korea Exchange
QWhat role does the lead managing underwriter play?
A managing underwriter is a securities firm that oversees company analysis, share underwriting and subscription work to ensure the smooth issuance of securities, and in an IPO the lead managing underwriter has decision-making authority over matters such as allocating shares to subscribers. Under Korea Financial Investment Association regulations, the lead manager agreement must cover verification and investigation of business results and financial soundness, financial and accounting guidance, consultation on listing requirements, checking of the entries in the securities registration statement, and checking of the largest shareholder's reputation, among other things. In principle, the lead manager agreement must be signed at least 2 months before applying for the preliminary listing review.
QWhat is a securities registration statement and when is it filed?
A securities registration statement is a document filed with the Financial Services Commission (Financial Supervisory Service) before securities are offered or sold to the public, containing information on the offering or sale and on the issuer. It must be filed when the amount offered or sold is KRW 1 billion or more, and the offering or sale cannot proceed unless the statement has been accepted. If the financial authorities require an amended statement to be filed, the statement is deemed not to have been accepted from the date of that request.
Source: Financial Supervisory Service Financial Glossary (FINE): Securities Registration Statement
QCan I subscribe as soon as the registration statement is filed?
No. A securities registration statement takes effect only after a certain period has passed from the date it is accepted. Under the Enforcement Rules, for public offerings or sales of equity securities the period is in principle 15 days; it is 10 days for shares of stock-listed corporations and 7 days for allotments to existing shareholders or third parties. If an amended statement changing the offer price or other terms is filed, the effective date may be reset.
QWhere can I see the prospectus and the report on securities issuance results?
The prospectus and the report on securities issuance results needed for IPO investing are available on the Financial Supervisory Service's electronic disclosure system (DART, dart.fss.or.kr). The prospectus contains the basis for calculating the offer price and the investment risks, and the amended prospectus filed after book-building contains the book-building results. In the report on securities issuance results, filed after subscription and payment are completed, you can check the subscription competition ratio and the status of institutional investors' lock-up commitments.
QWhat is book-building (demand forecast)?
Book-building (demand forecast) is the process in which, to set the offer price, the lead managing underwriter presents an indicative price range and gauges demand from institutional investors, including the prices and quantities at which they wish to buy. It surveys institutional demand ahead of the general subscription to find an appropriate price at which supply and demand match, and it is widely used overseas as well. Members of the issuer's employee stock ownership association and the underwriters, among others, may not participate in book-building.
Source: Financial Supervisory Service Financial Glossary (FINE): Book-Building (Demand Forecast)
QHow is the offer price determined?
Under Korea Financial Investment Association regulations, the offer price is set by one of the following methods: (1) a single price agreed between the underwriter and the issuer; (2) a price agreed taking into account the results of book-building among institutional investors; or (3) and (4) auction (bidding) methods for institutional investors. When the price is set through book-building, the lead managing underwriter must establish and follow internal standards on the pricing method and procedure, and if it sets the price differently, it must document the reasons.
QHow is the indicative offer price range calculated?
The underwriter values the company using an absolute valuation method or a relative valuation method that compares it with similar companies, and calculates the indicative offer price range. The final offer price is determined through book-building among institutional investors with reference to this range. The basis for the offer price can be found in the prospectus under 'Opinion on the offer price' in the 'Underwriter's opinion' section.
QWhat problems arise if the offer price is set too high?
If the offer price is set above an appropriate level, it can hurt investment returns, for example by causing the share price to fall below the offer price after listing. In a past FSS analysis, the larger the offering and the lower the book-building and subscription competition ratios, the more often the closing price on the listing day was below the offer price. However, these are only past statistics and do not predict the outcome for any individual stock, so it is important to check the basis for the offer price yourself.
QHow do I subscribe for IPO shares?
General investors open an account with the managing underwriter or another underwriter (securities firm) for the offering and subscribe during the set subscription period by paying a subscription deposit. Each underwriter sets a subscription limit per retail subscriber within 10% of the total number of shares it allocates to retail subscribers. Managing underwriters and underwriters may not lend subscribers the money needed to subscribe.
QWhat happens to the subscription deposit after allocation?
Subscription deposits received by an underwriter are deposited separately with a securities finance company or a bank and cannot be used as collateral. On the payment date, the deposit is applied to the payment for the shares, and any deposit exceeding the amount allocated must be returned to the subscriber without delay. When competition is high, most of the deposit paid is refunded and only a few shares are allocated.
QWho gets IPO shares, and how many?
Under Korea Financial Investment Association regulations, at least 25% of the offered shares are allocated to retail subscribers, and in KOSPI market IPOs 20% is allocated to the employee stock ownership association (up to 20% may be allocated for KOSDAQ and KONEX). At least 5% (at least 10% for KOSDAQ) is allocated to high-risk high-yield investment trusts that commit to holding the shares for 15 days or more, and in KOSDAQ IPOs at least 30% is allocated to venture company investment trusts (KOSDAQ venture funds); the remainder is allocated to institutional investors. Allocation rules change frequently as the regulations are amended, so check the securities registration statement for the offering concerned.
QWhat is equal allocation of IPO shares?
Equal allocation is a method in which at least 50% of the shares an underwriter allocates to retail subscribers are divided equally among all subscribers who paid at least the minimum subscription deposit. The rest are allocated in proportion to the number of shares subscribed for (proportional allocation). Introduced at the end of 2020, it has given small investors more opportunity to receive IPO shares.
QCan I subscribe for the same IPO through several securities firms?
You cannot receive duplicate allocations. For IPOs whose securities registration statement was filed on or after June 20, 2021, duplicate allocations to retail subscribers are restricted, so even if the same investor subscribes through several securities firms, shares are allocated only for the subscription received first. Securities firms must check for duplicate subscriptions through the Korea Securities Finance Corporation's computer system.
Source: [Press release] Duplicate allocations restricted when subscribing for IPO shares
QWhat is allocation to the employee stock ownership association?
In KOSPI market IPOs and public offerings, 20% of the offered shares must be allocated to the employee stock ownership association, which is made up of the company's officers and employees. If the association, following a resolution of its general meeting of members, indicates in writing that it wishes to be allocated less than 20%, the shortfall may be allocated to other investor groups such as retail subscribers or institutional investors.
Source: [Press release] Duplicate allocations restricted when subscribing for IPO shares
QWhat is a lock-up commitment?
A lock-up commitment is a promise by an institutional investor not to sell its IPO shares for a certain period after listing (e.g., 2 weeks, 1 month, 3 months or 6 months) in return for a larger allocation. When the commitment period ends, large sell orders may emerge and affect the share price, so it is a good idea to check the number of committed shares and when they become sellable in advance. This information can be found in the 'Allocations to institutional investors by lock-up commitment period' section of the report on securities issuance results.
QIs it true that institutions making lock-up commitments get IPO shares first?
Yes. Following a 2025 amendment to Korea Financial Investment Association regulations, the lead managing underwriter must first allocate (pre-allocate) at least a certain proportion of the shares expected to go to institutional investors to institutions that have made lock-up commitments. The proportion under the regulations is 40%, and 30% applied to offerings whose securities registration statement was first filed by the end of 2025. In addition, if allocations to committed institutions fall short of the standard, the lead managing underwriter is now required to acquire 1% of the offered shares (up to KRW 3 billion) itself and hold them for at least 6 months.
QHow does mandatory holding (protective deposit) differ from an institution's lock-up commitment?
The mandatory holding (protective deposit) system at listing prohibits persons with management responsibility, such as the largest shareholder and specially related persons, from selling their shares for a certain period (usually 6 months) from the listing date; it is an obligation under the exchange's listing regulations. It is intended to protect investors from sharp price swings caused by large-scale selling in the early period after listing, and the shares concerned are registered for mandatory holding with the Korea Securities Depository. An institutional investor's lock-up commitment differs in that it is a voluntary promise made in order to receive an IPO allocation.
Source: [Press release] Mandatory holding of shares by executives of newly listed companies is strengthened
QCan executives sell shares acquired through stock options right after listing?
Under improvements made in 2022, shares that executives and others of a company applying for listing acquire after listing by exercising stock options granted before listing were also made subject to mandatory holding. Shares acquired by exercising options during the mandatory holding period cannot be disposed of for the remainder of that period. Companies were also encouraged to set differentiated mandatory holding periods for each person concerned, adding up to 2 years to the basic 6 months, and to disclose these in the securities registration statement and other documents.
Source: [Press release] Mandatory holding of shares by executives of newly listed companies is strengthened
QWhat is a put-back option (right to request repurchase)?
A put-back option is the right of retail subscribers who were allocated IPO shares to sell those shares back to the underwriter within a certain period after listing. It is granted in cases set out in the regulations, such as when the offer price was set as a single price without book-building, when the basis for the offer price was not stated, or for listings of companies that are not yet profitable or are listed on the strength of their business model. If the option is exercised, the underwriter must in principle buy back the shares at 90% or more of the offer price, and the exercise period varies by case, such as 1, 3 or 6 months from the listing date.
QWhat is an over-allotment option (greenshoe)?
An over-allotment option is an arrangement under which the lead managing underwriter, under an agreement with the issuer, may allocate additional shares of up to 15% of the number of shares offered. The option is exercised at the offer price within 30 days from the start of trading, and when the managing underwriter buys shares in the market to cover the net short position created by the over-allotment, it must buy at a price of at least 80% of the offer price. It is used as a mechanism to help stabilize the share price in the early period after listing.
QHow much can the share price move on the first day of listing?
Under the measures to improve IPO soundness announced by the Financial Services Commission at the end of 2022, the price fluctuation range on the listing day was widened from the previous 63%-260% of the offer price to 60%-400% of the offer price. This was intended to reduce problems such as a few traders monopolizing trading opportunities and delays in finding an equilibrium price. Check the Korea Exchange business regulations for the criteria actually applied.
Source: [Press release] Measures to improve IPO soundness, including preventing inflated subscriptions
QDo IPO shares rise once they are listed?
No, not necessarily. According to an FSS analysis, about one-third of the stocks that went public in 2016 closed below their offer price on the listing day, and even more were trading below the offer price 1 month after listing. Share prices after listing can vary greatly depending on the offer price level, book-building and subscription results, the volume of lock-up commitments and other factors, so be sure to check the investment risks in the prospectus.
Source: Financial Supervisory Service press release: Precautions when investing in IPO shares
QWhat should I check before investing in IPO shares?
The Financial Supervisory Service advises first checking the investment risks in the prospectus, and then looking at the basis for the offer price, the results of institutional book-building (participation by investor type and the distribution of bid prices), the subscription status and the volume of lock-up commitments. You can also refer to each underwriter's past IPO track record on the Korea Financial Investment Association's electronic disclosure service. However, even this information does not guarantee future share prices.
Source: Financial Supervisory Service press release: Precautions when investing in IPO shares
QWhat are 'inflated subscriptions' by institutional investors, and how are they prevented?
Inflated subscriptions means bidding for more shares than one's actual demand or ability to pay in order to be allocated the desired number of shares. To prevent this, the managing underwriter checks institutional investors' ability to pay for the shares (equity capital for proprietary assets, total assets for entrusted assets, etc.) and does not allocate IPO shares to bids whose amount exceeds that ability to pay. Institutional investors must submit to the managing underwriter a written undertaking stating their ability to pay for shares.
QCan private fund managers and discretionary investment managers take part in IPO book-building?
They can, but the requirements were tightened by a 2025 amendment to Korea Financial Investment Association regulations. An asset manager registered for general private collective investment business may participate with its proprietary assets or collective investment assets if 2 years have passed since registration and the average daily value of its managed assets over the most recent 3 months is KRW 5 billion or more, or if that value is KRW 30 billion or more. Even if it does not meet these requirements, it may participate with collective investment assets in certain cases, such as when it commits to holding the allocated shares for at least 3 months, and similar requirements apply to discretionary investment managers.
QWhat is a technology special listing?
A technology special listing is a system that allows companies whose technology or business model growth potential has been recognized to list on KOSDAQ even if they are not currently profitable. Companies with strong technology use the 'innovative technology track', which requires a technology assessment by a specialized agency, while companies with distinctive business models use the 'business model track', which requires a recommendation from a listing sponsor. Because such listings rely on future growth rather than actual results, investors should also consider the risk that performance after listing will fall short of expectations.
QHow has the technology special listing system changed recently?
In July 2023, the government and related institutions announced 14 tasks to improve the technology special listing system. A 'super-gap technology special listing' was created under which companies in advanced technology fields, such as national strategic technologies, with a market capitalization of KRW 100 billion or more and investment of KRW 10 billion or more attracted over the last 5 years need a technology assessment from only 1 agency. In addition, if a company listed through a technology special listing becomes insolvent within 2 years, the securities firm that managed that listing faces stronger responsibilities when it arranges special listings afterwards, such as granting put-back options and extending lock-up periods.
QWhat is a SPAC?
A SPAC (special purpose acquisition company) is a nominal company established for the purpose of merging with a promising unlisted company or a similar entity. It first goes public and lists on the exchange to raise funds for the merger, and then merges with an unlisted company or similar entity within 36 months of listing. Once the merger takes place, the target company is effectively listed.
Source: Financial Supervisory Service Financial Glossary (FINE): Special Purpose Acquisition Company
QHow are the funds raised by a SPAC protected?
A SPAC must deposit or place in trust at least 90% of the money raised in its public offering; withdrawals are restricted, and borrowing from others and providing debt guarantees are prohibited. It is also prohibited from selecting or negotiating with a merger target before its initial offering. Its articles of incorporation must provide that, if it is dissolved, the deposited funds are paid only to the shareholders who bought in the public offering, in proportion to their shareholdings.
Source: Korea Exchange 2026 Understanding and Practice of KOSDAQ Listing Review (pp. 211-221)
QHow is a SPAC merger listing reviewed?
When a SPAC merges, the exchange reviews the target company's eligibility for listing. The target's merger value or total assets must be at least 80% of the funds deposited by the SPAC, and the form of business combination is limited to a merger. The merger deadline is up to 36 months after listing, and the lead promoter of a SPAC must be a securities firm with equity capital of KRW 100 billion or more.
Source: Korea Exchange 2026 Understanding and Practice of KOSDAQ Listing Review (pp. 211-221)
QWhat is a backdoor listing?
A backdoor listing refers to an unlisted company effectively achieving a listing without going through the formal listing review and public offering process, by means such as a merger with a listed company, a comprehensive share exchange, or a business acquisition combined with a capital increase through third-party allotment. It is not an official legal term, but it often involves major changes to the listed company's governance or business.
Source: Financial Supervisory Service Financial Glossary (FINE): Backdoor Listing
QWhat is pre-IPO investment?
Pre-IPO refers to an unlisted company raising funds at a late stage before listing on a stock market. Investors invest anywhere from a few months to a few years before the listing and recover their investment when the company lists or is sold to a strategic investor. Because the risk is high, investors often invest at a price below the eventual offer price.
Source: Pre-IPO
QWhat are the main risks of pre-IPO investment?
The listing may be delayed beyond plan or fall through entirely, and unlisted shares are hard to buy and sell, so you may not be able to cash out when you want. Unlike listed companies, disclosure such as audited financial information is limited, which also makes it hard to value the company objectively. You should therefore thoroughly check the substance of the target company, the investment structure and how you will recover your investment.
Source: Pre-IPO
QI was urged to buy unlisted shares because the company is 'about to list'. Is this safe?
The Financial Supervisory Service warns that if someone urges you to buy unlisted shares with promises of high returns, using 'imminent listing' or 'planned listing' as bait, you should suspect fraud first. Regulated financial companies generally do not solicit investment in places such as one-on-one chat rooms, and company information you come across online can be fabricated. Offers to sign a buy-back agreement in case the listing fails are also an investment fraud technique, so if you have doubts, report it to the Financial Supervisory Service (1332) or the police (112).
QI was contacted with an offer to pre-subscribe at a price below the offer price.
The Financial Supervisory Service issued a consumer alert about cases in which websites imitating the homepages of companies undergoing IPOs solicited 'pre-subscriptions' at prices discounted from the actual offer price and demanded personal information and deposits. IPO subscriptions are conducted only according to the procedures and methods set out in the securities registration statement, so be sure to check the securities registration statement disclosed on DART. Do not respond to investment solicitations received by phone or text message.
QWhat is a KOSDAQ venture fund?
A KOSDAQ venture fund invests at least a certain proportion of its assets in new shares of venture companies and in venture companies and the like, and it can receive priority allocation of at least 30% of the shares in KOSDAQ IPOs. Under current Korea Financial Investment Association regulations, to receive priority allocation the fund must commit to holding the shares for at least 15 days and, if set up as a private fund, must prohibit redemption for at least 1 year and 6 months. Tax benefits (an income deduction) have been available for funds meeting the requirements, but the applicable deadline and limits change with tax law amendments, so check the latest laws.
Source: Financial Services Commission Financial Glossary: KOSDAQ Venture Fund
QHow are high-yield funds (high-risk high-yield investment trusts) related to IPO shares?
A high-risk high-yield investment trust is a fund that holds at least a certain proportion of non-investment-grade bonds and the like, and under Korea Financial Investment Association regulations it can receive priority allocation of at least 5% of IPO shares (at least 10% for KOSDAQ). To receive priority allocation, it must commit to holding the shares for at least 15 days and meet the holding ratio requirements. Because it invests in non-investment-grade bonds, its high credit risk should also be taken into account.
QWhat is the cornerstone investor system?
The cornerstone investor system allows part of the shares to be allocated to institutional investors to be allocated in advance, before the securities registration statement is filed, to institutional investors that agree to a lock-up of at least 6 months. The FSCMA amendment introducing it, together with a pre-book-building system that gauges demand before the registration statement is filed, passed the National Assembly on April 23, 2026, and will take effect 6 months after promulgation. The allocation for individual investors (25%) remains unchanged, and details such as the allocation cap are to be set in the Enforcement Decree.
QIn what direction is the IPO system changing?
In January 2025, the financial authorities announced 'Measures to Improve the IPO and Delisting Systems', setting out a direction of shifting the IPO market away from investing for short-term gains and toward investing based on corporate value. Key elements include expanding institutional investors' lock-up commitments (priority allocation), restricting book-building participation by small private fund managers and discretionary investment managers, strengthening the role and responsibilities of underwriters, and introducing cornerstone investors and pre-book-building. Because the system keeps changing, check the securities registration statement for each offering and announcements by the Financial Services Commission.
QIf an offering is under KRW 1 billion, is it exempt from filing a securities registration statement?
Yes. So-called 'small-scale public offerings', which qualify as public offerings or sales but are under KRW 1 billion, do not require a securities registration statement. Instead, so that investors can learn basic information about the issuer, small-scale offering disclosure documents such as an audit report must be submitted at least 3 days before the offering or sale begins, and a results report when it ends. Because there is no review of a registration statement, investors need to check the information carefully themselves.
QWhat are the primary market and the secondary market?
The stock market is divided into the primary market (issuance market), where new shares are first supplied through IPOs, paid-in capital increases and the like, and the secondary market (trading market), where shares already issued are traded among investors. Subscribing for IPO shares takes place in the primary market, while buying and selling on the exchange after listing takes place in the secondary market. Korea's secondary market includes the KOSPI, KOSDAQ and KONEX markets operated by the Korea Exchange, and the K-OTC market, an over-the-counter market.
QHow are the financial statements of a company about to list verified?
A company preparing to list undergoes an accounting audit by an auditor designated by the Securities and Futures Commission and, if it meets certain criteria, a financial statement review by the Financial Supervisory Service and the Korean Institute of Certified Public Accountants. If serious accounting fraud is found in the review, it is converted into an audit inspection, and if the inspection results in a sanction for 'gross negligence or worse', the listing review is rejected. Prompted by cases in which questions were raised about companies' financial condition, for example after their share prices plunged right after listing, the financial authorities have strengthened financial statement reviews of companies planning to list since 2025.
02
KOSDAQ Venture Funds
This section summarizes the legal requirements and asset composition of KOSDAQ venture funds (venture company investment trusts), how priority allocation of KOSDAQ IPO shares works, the income deduction and its recovery, public and private fund structures and redemption limits, and the main risks. Private KOSDAQ venture funds are open only to qualified investors. Requirements, allocation ratios and tax benefits change frequently as laws and regulations are amended, so be sure to check the latest laws and the fund's collective investment rules and prospectus or product description before investing.
QWhat is the legal name of a KOSDAQ venture fund?
'KOSDAQ venture fund' is not an official legal term but a common name for the 'venture company investment trust' defined in the Restriction of Special Taxation Act. Article 16 of that Act provides an income deduction when a resident invests in the beneficiary certificates of a venture company investment trust prescribed by Presidential Decree, and Korea Financial Investment Association regulations also set aside a separate allocation of KOSDAQ IPO shares for these trusts. So in fund documents and regulations, look for the term 'venture company investment trust'.
QWhen and why were KOSDAQ venture funds created?
The venture company investment trust was created at the end of 1997, but it was rarely used because of a strict rule requiring at least 50% of fund assets to be invested in new shares of venture companies. In January 2018, the Financial Services Commission announced in its 'Capital Market Innovation Measures through Revitalizing the KOSDAQ Market' that it would relax these investment rules and combine priority allocation of KOSDAQ IPO shares with an income deduction to revive the vehicle as the 'KOSDAQ venture fund'. The aim was to supply risk capital to innovative and venture companies and to broaden participation in the KOSDAQ market.
Source: [Press release] 'Capital Market Innovation Measures through Revitalizing the KOSDAQ Market'
QHow did the market respond when KOSDAQ venture funds were first launched?
According to the Financial Services Commission, KOSDAQ venture funds were launched on April 5, 2018, and total sales reached KRW 1.9469 trillion (KRW 523.6 billion public, KRW 1.4233 trillion private) as of April 26 of that year. At that point, 68 asset managers had launched 148 funds (7 public, 141 private), so private funds made up a large share. The Commission cited expectations of returns from IPO share allocation, an income deduction with no restrictions on who could subscribe, and the KOSDAQ market conditions at the time as reasons for the strong demand.
Source: KOSDAQ venture fund roundtable held and system improvement measures discussed
QHow much is invested in KOSDAQ venture funds overall?
According to materials released by the Financial Services Commission in December 2025, the outstanding balance of KOSDAQ venture funds was KRW 3.9 trillion at the end of 2020, KRW 5.1 trillion at the end of 2022, KRW 4.9 trillion at the end of 2024 and KRW 5.3 trillion at the end of August 2025. These figures show the size of the whole market, public and private combined, and say nothing about the returns or performance of any individual fund. Check announcements by the financial authorities or the Korea Financial Investment Association for the latest figures.
QWhy are KOSDAQ venture funds called 'policy funds'?
Because the government has built incentives into the system, namely tax benefits and a separate allocation of IPO shares, to channel money into the KOSDAQ market and venture companies. In its January 2025 IPO reform measures, the Financial Services Commission referred to high-yield funds and KOSDAQ venture funds as 'policy funds' and explained that a certain proportion of offered shares had been allocated to them separately. Because these benefits serve policy goals, they come with sunset dates, and the requirements and ratios can change with policy direction.
QHow must a KOSDAQ venture fund's assets be composed?
Under the Enforcement Decree of the Restriction of Special Taxation Act, within 6 months of establishment (9 months for funds that are not private), the combined share of (1) investments in venture companies and (2) investments in KOSDAQ-listed small, medium or mid-sized companies that ceased to be venture companies less than 7 years ago must reach at least 50% of trust assets. Of this, assets invested in venture companies through investments under the Act on the Promotion of Venture Investment, such as subscribing for new shares, must be at least 15%. After that, the average daily ratios are checked every 6 months to confirm they remain at or above 50% and 15%, except for the 6 months before the trust is terminated.
QWhat kinds of investment count toward the '15% in new venture shares' requirement?
The Enforcement Decree defines the 15% requirement in terms of investment under Article 2(1) of the Act on the Promotion of Venture Investment, excluding purchases of shares or bonds held by others. That Act defines 'investment' as subscribing for shares of a stock company, unsecured convertible bonds, unsecured exchangeable bonds or unsecured bonds with warrants, and acquiring capital contributions in limited companies, among other things. In other words, the core of this requirement is subscribing at issuance for new shares or unsecured mezzanine securities issued by venture companies.
QWhat is the difference between new shares and existing shares, and why does it matter for KOSDAQ venture funds?
New shares are newly issued by a company, so the money invested goes to the company and funds its growth; existing shares are already held by shareholders, so when you buy them the money goes to the selling shareholder. The Enforcement Decree counts both subscriptions for new shares and purchases of existing shares toward the 50% requirement for venture companies and the like, but the 15% requirement can be met only through investments such as subscribing for new shares of venture companies. This can be seen as a way to make sure fresh capital reaches venture companies.
QWhat is a company 'within 7 years of losing venture status'?
It refers to a company that used to be a venture company, ceased to qualify as one less than 7 years ago, and is a small, medium or mid-sized company listed on the KOSDAQ market. In the 2018 reform, the investment targets, which had been limited to new shares of venture companies, were widened to include new and existing shares of such KOSDAQ-listed companies, allowing funds to invest in KOSDAQ-listed companies as well. As a result, shares of former venture companies that have grown after listing on KOSDAQ can count toward the 50% requirement for a certain period.
Source: [Press release] 'Capital Market Innovation Measures through Revitalizing the KOSDAQ Market'
QDoes a fund have to meet the investment ratio requirements as soon as it is set up?
No. There is a compliance period before the requirements must be met: under the current Enforcement Decree, private funds have 6 months from establishment and funds that are not private have 9 months. In October 2018, the Financial Services Commission announced an improvement extending the compliance period for public KOSDAQ venture funds from 6 to 9 months, reflecting industry concerns that a rush of money into new venture shares over a short period could cause supply-demand imbalances and management burdens.
Source: [Press reference] Improving investment rules for KOSDAQ venture funds
QIf the fund loses money and the investment ratio falls, does it fail the requirements?
The Enforcement Decree has a special rule: if the valuation of the trust assets is below the invested principal and the 15% ratio falls short, the ratio is deemed to be 15%. In addition, the 6-monthly checks do not apply to the 6 months before the trust is terminated. However, the detailed calculations follow the formulas in the Enforcement Decree, so check with the asset manager whether a particular fund meets the requirements.
QCan a KOSDAQ venture fund hold convertible bonds (CBs) or bonds with warrants (BWs) issued by venture companies?
Yes. 'Investment' under the Act on the Promotion of Venture Investment includes subscribing for unsecured convertible bonds and unsecured bonds with warrants, so such mezzanine securities can count toward the requirements. Public funds generally may not hold unsecured bonds that have not been rated, but following improvement measures in 2018, the Regulations on Financial Investment Business make an exception for venture company investment trusts holding certain unsecured bonds specified in the regulations, such as unrated bonds for the qualified institutional buyer (QIB) market. Mezzanine securities also carry the issuer's credit risk, so the issuer's ability to repay should be examined.
QDo KOSDAQ venture funds also invest in venture companies before they list (pre-IPO)?
They can. To meet the 15% requirement, a fund must subscribe for new shares or mezzanine securities issued by venture companies, and in 2018 the Financial Services Commission explained that private KOSDAQ venture funds, which typically take a venture capital approach, had an advantage in meeting this requirement by using CBs and BWs of unlisted venture companies from an early stage. Unlisted companies may see their listing delayed or cancelled and disclose only limited information, so liquidity and valuation risks can be greater than for investments in listed companies.
Source: KOSDAQ venture fund roundtable held and system improvement measures discussed
QWhat is a venture company?
A venture company is a company that meets the requirements of the Special Act on the Promotion of Venture Businesses and has been confirmed as a venture company in recognition of its technological innovation and business growth potential. Confirmation types are divided into the venture investment type, the R&D type and the innovation-growth type; in the 2021 reform, the former guarantee/loan type was abolished and replaced by the innovation-growth type. In practice, a venture company confirmation certificate is used to check whether a company is a venture company and how long the status is valid.
Source: Venture Confirmation Management System: Overview of the venture company confirmation system
QWho confirms venture company status, and how long is it valid?
Since February 12, 2021, the system has been private-sector led: the Korea Venture Business Association, designated as the venture company confirmation institution, handles everything from receiving applications to evaluation and review, and a venture company confirmation committee made up of private-sector experts deliberates and decides on confirmations and cancellations. The validity period of a confirmation was extended from 2 years to 3 years in that reform. Applications and confirmation status can be checked on the Venture Confirmation Management System (Venturein).
Source: Venture Confirmation Management System: Overview of the venture company confirmation system
QHow are IPO shares divided among KOSDAQ venture funds?
Under Korea Financial Investment Association regulations, when allocating the share reserved for venture company investment trusts, if funds bid at or above the offer price in book-building and made the same lock-up commitment period, shares are allocated in proportion to each fund's net assets, or after applying weights of 110% for public funds and 100% for private funds. In addition, the amount allocated to a single fund may not exceed 10% of that fund's total assets. So even with a priority allocation, the more funds participate, the smaller each fund's allocation may be.
QWhy do public KOSDAQ venture funds get a higher weighting in allocation?
Shortly after the 2018 launch, money flowed mainly into private funds, and critics pointed out that the practice of allocating shares regardless of fund size favored small private funds. In its 'Balanced Growth Measures for KOSDAQ Venture Funds' at the end of April that year, the Financial Services Commission said it would allocate shares taking net assets into account and allow additional shares for public funds. The aim was to help public funds, where the need for investor protection is greater, invest smoothly in listed shares centered on IPO shares.
Source: KOSDAQ venture fund roundtable held and system improvement measures discussed
QWhat happens to the priority allocation if demand from KOSDAQ venture funds is insufficient?
Korea Financial Investment Association regulations provide that if valid book-building bids from venture company investment trusts are insufficient to fill the mandatory allocation, the mandatory allocation is deemed to have been made. Valid bids here are those that do not exceed the bidder's capacity to pay for the shares and were submitted at or above the offer price. Also, if subscriptions from one investor group fall short of its allocation ratio, the remaining shares may be allocated to other groups.
QDo KOSDAQ venture funds also get priority allocation in KOSPI IPOs?
No. Under Korea Financial Investment Association regulations, the separate allocation for venture company investment trusts applies to IPOs for listing on the KOSDAQ market and to public offerings of new shares by KOSDAQ-listed companies. KOSPI market IPOs have no such separate allocation, so KOSDAQ venture funds participate in book-building and receive shares within the general institutional investor allocation.
QDo KOSDAQ venture funds also get an allocation when a KOSDAQ-listed company raises capital?
Yes. Korea Financial Investment Association regulations provide that when a KOSDAQ-listed company issues new shares through a public offering, at least 30% of the shares remaining after allocations to the employee stock ownership association and to shareholders with preemptive subscription rights must be allocated to venture company investment trusts. When an underwriter takes up unsubscribed shares and offers them again to retail subscribers, at least 30% of those shares are likewise allocated to venture company investment trusts if the issuer is KOSDAQ-listed. However, the allocation may be skipped if the shares to be allocated are 5,000 shares or fewer (based on a par value of KRW 5,000) or the offering amount is KRW 100 million or less.
QCan a KOSDAQ venture fund that is less than 1 year old receive priority allocation?
Yes, but Korea Financial Investment Association regulations set a separate test. A venture company investment trust that has existed for less than 1 year from its initial establishment to the book-building date qualifies for priority allocation only if, as of the business day before the book-building, the combined investment ratios under the Enforcement Decree are at least 35% of total trust assets. In addition, the regulations limit eligible venture company investment trusts to those established after the amendment to the Enforcement Decree specified in the regulations (Presidential Decree No. 28636) took effect.
QDoes receiving KOSDAQ IPO shares also help a fund meet the new share requirement?
It can. In 2018 materials, the Financial Services Commission analyzed, by fund size, how much KOSDAQ IPO allocations contribute to meeting a fund's obligation to hold new shares, and concluded that the larger the fund, the smaller the allocation relative to net assets, making it hard to meet the requirement with IPO shares alone. Offered shares can include existing shares sold by current shareholders as well as new shares, so the asset manager determines the actual calculation according to the Enforcement Decree.
Source: KOSDAQ venture fund roundtable held and system improvement measures discussed
QWhy must a KOSDAQ venture fund make a 15-day lock-up commitment to receive priority allocation?
In January 2025, the financial authorities responded to criticism that more policy funds were selling separately allocated IPO shares on the listing day just for short-term gains, and decided to grant the separate allocation only to shares covered by a lock-up commitment (15 days or longer). Shares without a commitment participate and are allocated in the same way as for ordinary funds. During the lock-up period the allocated shares cannot be sold, so the fund bears the full share price swings right after listing.
QWhy do private KOSDAQ venture funds have a 1 year and 6 month redemption ban?
When the funds were first launched in 2018, concerns were raised that without redemption limits, wealthy investors and others with little interest in the tax benefit could enjoy the IPO allocation benefit and then redeem right away. The Financial Services Commission therefore proposed granting eligibility for priority allocation only to private funds that prohibit redemption for a certain period (for example, 1 year and 6 months) to encourage long-term investment. Current Korea Financial Investment Association regulations likewise recognize a private venture company investment trust for the separate allocation only if redemption is prohibited for at least 1 year and 6 months from its initial establishment.
Source: KOSDAQ venture fund roundtable held and system improvement measures discussed
QIs there a penalty if a fund is terminated early after receiving IPO shares?
Yes. Korea Financial Investment Association regulations treat it as improper book-building participation if a venture company investment trust that received IPO shares through book-building is terminated within 1 year of its establishment, or within 3 months of the date the shares were allocated (excluding the last 3 months of a trust whose contract term is 3 years or longer). The same applies if a private venture company investment trust is redeemed within 1 year and 6 months of its initial establishment after receiving IPO shares. In such cases, the asset manager may face sanctions under the regulations, such as restrictions on participating in book-building.
QWhat must an asset manager commit to when a KOSDAQ venture fund receives IPO shares?
Under Korea Financial Investment Association regulations, a collective investment business entity that wants IPO shares allocated to a venture company investment trust must submit a letter of commitment to the lead managing underwriter. The letter states that the asset manager is not among those barred from allocation, such as related parties of the underwriter or the issuer; that the fund meets the requirements for a venture company investment trust under the regulations; and, for a private fund, that redemption is prohibited for at least 1 year and 6 months from establishment.
QWas the priority allocation ratio always 30%?
When the scheme was introduced in 2018, 30% of KOSDAQ IPO shares were allocated to KOSDAQ venture funds on a priority basis, but the ratio was later adjusted and stood at 25% when the financial authorities made their announcements in 2025. In December 2025, in its 'Measures to Enhance KOSDAQ Market Trust + Innovation', the Financial Services Commission said it would raise this allocation from 25% to 30%, and as of October 2026 Korea Financial Investment Association regulations require at least 30% of KOSDAQ IPO shares to be allocated. Because the ratio can change with policy, check the securities registration statement for each offering.
QHow long will the priority allocation benefit last?
Priority allocation has been run as a temporary benefit with a set deadline. In 2020 Financial Services Commission materials the sunset date was the end of 2023, and in January 2025 materials it was the end of 2025. In December 2025, the Commission announced a 3-year extension of the tax and priority allocation benefits that had been due to expire at the end of 2025, so check related announcements and regulations to see whether they are extended beyond that.
QDoes priority allocation of IPO shares guarantee fund returns?
No. IPO shares can trade below the offer price after listing, and because participating funds share the separate allocation according to net assets and other factors, the amount each fund receives may be limited. The Financial Supervisory Service found that, partly because of the launch of KOSDAQ venture funds (April 2018), the book-building competition ratio for KOSDAQ IPOs rose from 325:1 in 2017 to 488:1 in 2018; the fiercer the competition, the smaller the allocation can be. Fund performance also depends heavily on price movements in other holdings, such as unlisted and small-cap shares.
QCan I see the KOSDAQ venture fund allocation in IPO disclosures?
Yes. When the financial authorities improved IPO share allocation in 2020, they required the securities registration statement to state the allocation for each investor type, such as institutional investors, retail subscribers and members of the employee stock ownership association, together with the subscription and allocation methods. For a KOSDAQ IPO, you can check the shares to be allocated to venture company investment trusts (KOSDAQ venture funds) in the securities registration statement and prospectus, which are available on the Financial Supervisory Service's electronic disclosure system (DART).
Source: Retail subscribers to get more opportunities for IPO share allocation
QHow do ordinary IPO funds differ from KOSDAQ venture funds?
An ordinary IPO fund has no separate allocation and takes part in book-building as a 'general institutional investor', competing with other institutions for the remaining institutional allocation. A KOSDAQ venture fund (venture company investment trust), by contrast, can receive a separately reserved portion of KOSDAQ IPOs in return for meeting requirements such as the venture investment ratios. In exchange, it holds a larger proportion of unlisted venture companies and small KOSDAQ companies, so the two types of fund can have different risk profiles.
QHow does the separate IPO allocation for high-yield funds differ from that for KOSDAQ venture funds?
Under Korea Financial Investment Association regulations, high-risk high-yield investment trusts (high-yield funds) that commit to a lock-up of at least 15 days receive at least 5% of offered shares (at least 10% for KOSDAQ IPOs), while venture company investment trusts meeting the same condition receive at least 30% of KOSDAQ IPO shares. High-yield funds are bond-focused funds that must hold at least a certain proportion of non-investment-grade bonds and the like, whereas KOSDAQ venture funds must meet investment ratios for shares and mezzanine securities of venture companies and the like. Because the assets required to qualify for the benefit differ, the nature of the risks differs too.
QWho can claim the KOSDAQ venture fund income deduction? Can a corporation?
The income deduction under Article 16 of the Restriction of Special Taxation Act deducts an amount from global income when a 'resident' invests in beneficiary certificates of a venture company investment trust, so it is available to individual residents. Corporations can invest in the funds, but the deduction under this provision does not apply to them, and non-residents are not eligible for it either. Check with the National Tax Service or a tax professional whether it applies in your situation.
QCan I get the income deduction if I acquire KOSDAQ venture fund beneficiary certificates from someone else?
No. The proviso to Article 16(1) of the Restriction of Special Taxation Act states that the income deduction does not apply to investments made by acquiring another person's capital contribution, investment stake or beneficiary certificates. In other words, only money you invest by subscribing to the fund yourself is eligible, and beneficiary certificates taken over from another investor are excluded.
QCan a privately offered KOSDAQ venture fund qualify for the income deduction?
In setting the requirements for venture company investment trusts, the Enforcement Decree provides separate compliance periods of 6 months for private collective investment vehicles and 9 months for other funds, so a privately offered fund can also qualify if it meets all the requirements. These include being an investment trust under the FSCMA with a contract term of at least 3 years, being transacted through a passbook account, and maintaining the investment ratios for venture companies and the like. However, private funds are open only to qualified investors, and whether a particular fund meets the deduction requirements should be checked in its collective investment rules and other documents.
QHow do I apply for the KOSDAQ venture fund income deduction?
Under the Enforcement Decree, an investor seeking the deduction must obtain a capital contribution or investment confirmation from the collective investment business entity of the venture company investment trust or from the financial company handling the trust, and submit it. Residents who settle their tax through year-end settlement, such as those with only employment income, submit it to their withholding agent or the like by the date they receive their February salary of the following year, and other residents submit it by the deadline for filing their final global income tax return. Check with your distributor and the National Tax Service for specific issuance and submission procedures.
QWhat should I do if I want to take the deduction in a different year?
The deduction is in principle taken in the year of investment, but you may choose one year from the investment year through the year that includes the date 2 years after the investment. According to the National Tax Service, to change the timing of the deduction you must submit an application to change the deduction year to the asset manager or other issuer when you obtain the investment confirmation. The deduction cannot be split across several years.
Source: National Tax Service Tax Counseling Center FAQ: Investments in Venture Investment Associations, etc.
QIf I redeem within 3 years and the deduction is recovered, how is the tax collected?
Under the current Enforcement Decree, the financial company handling the venture company investment trust collects 35/1,000 of the amount of the transfer or redemption of the beneficiary certificates, up to KRW 2 million a year, and pays it to the tax office by the 10th of the following month. If the investor proves that the tax actually reduced was less than this, only the amount actually reduced is recovered. The tax is not recovered for reasons set by law, such as the investor's death, emigration of the entire household overseas, or serious property loss from a natural disaster.
QUntil when does the KOSDAQ venture fund income deduction apply?
Article 16 of the Restriction of Special Taxation Act applies the income deduction to amounts contributed to or invested in venture company investment trusts and the like by December 31, 2028 (amended December 2025, as of October 2026). The National Tax Service's commentary on the 2026 tax law amendments also explains that the deadline for venture investment income deductions was extended from December 31, 2025 to December 31, 2028. Whether investments made after the deadline qualify will depend on the laws in force at that time.
QIs income received from a KOSDAQ venture fund also taxed?
The income deduction is a benefit on the amount invested; separate tax rules apply to income you receive from the fund. According to the National Tax Service, fund income is in principle taxed as dividend income, but gains and losses arising from the fund's trading or valuation of securities listed on the securities market or of shares and equity interests in venture companies are not included in taxable income. Income from other sources, such as bond interest, may be taxed, so check the prospectus and the National Tax Service's guidance for details.
Source: National Tax Service Tax Guide: Income from Collective Investment Vehicles
QHow do public and private KOSDAQ venture funds differ?
The Financial Services Commission explained that public KOSDAQ venture funds are open to anyone but subject to strict diversification, disclosure and other investor protection rules, giving them an advantage in managing highly liquid assets such as listed shares, including IPO shares. Private KOSDAQ venture funds are open only to qualified investors and were seen as having an advantage in step-by-step, relationship-based investments such as CBs and BWs of unlisted venture companies. Different rules also apply, such as allocation weightings (110% for public funds, 100% for private funds) and the 1 year and 6 month redemption ban for private funds.
Source: KOSDAQ venture fund roundtable held and system improvement measures discussed
QWho can invest in a private KOSDAQ venture fund, and how?
A private KOSDAQ venture fund is a general private fund, so only qualified investors can invest. Qualified investors are professional investors or individuals, corporations and others investing at least the minimum amount set by the Enforcement Decree, which is KRW 300 million or more (for funds whose derivatives risk exposure and the like do not exceed 200% of net assets) or KRW 500 million or more, depending on leverage. The distributor must verify qualified investor status and, for general investors, deliver and explain a key product description prepared by the asset manager and reviewed by the distributor.
QAre private KOSDAQ venture funds subject to the same rules as other general private funds?
Yes. A KOSDAQ venture fund set up privately is a general private collective investment vehicle under the FSCMA and follows the rules for general private funds, such as issuance only to qualified investors, reporting to the Financial Services Commission and investment restrictions. On top of that, to receive the income deduction and the separate IPO allocation, it must also meet the venture company investment trust requirements in the Enforcement Decree of the Restriction of Special Taxation Act and the requirements in Korea Financial Investment Association regulations (a lock-up commitment of at least 15 days, a 1 year and 6 month redemption ban and so on). In other words, 'KOSDAQ venture fund' is less a separate type of fund than a status given to funds that meet certain requirements.
QWhy do private KOSDAQ venture funds often restrict redemptions?
First, under Korea Financial Investment Association regulations, a private venture company investment trust must prohibit redemption for at least 1 year and 6 months from its initial establishment to receive the separate IPO allocation. Second, under the 2021 private fund reform, a private fund in which assets without an exchange market price, excluding those readily convertible to cash, exceed 50% must be set up as a closed-end fund that does not allow redemption at any time. Funds holding hard-to-sell assets such as unlisted venture shares and mezzanine securities may therefore have restricted redemptions, so be sure to check the maturity and redemption terms before investing.
QDo KOSDAQ venture funds have a maturity?
Under the Enforcement Decree, a venture company investment trust eligible for the income deduction must be an investment trust with a contract term of at least 3 years, so it has a set trust contract term. The actual maturity and the conditions for extension or early termination are set out in each fund's collective investment rules, so check them before investing. If you have received the income deduction, also keep in mind that redeeming or transferring within 3 years of the investment date triggers recovery of the deducted tax.
QHow is the net asset value of a KOSDAQ venture fund with many unlisted shares determined?
Fund assets are in principle valued at market price, and at fair value where no market price exists. The Financial Services Commission explained that fair value is set by the asset manager's collective investment property valuation committee, taking into account acquisition prices, transaction prices and prices provided by bond pricing companies, and that CBs and BWs of unlisted companies held by KOSDAQ venture funds are valued in the same way as other assets. For assets without a market price, keep in mind that the net asset value may differ from the price actually obtainable on sale, depending on the valuation method and timing.
QWhat are the risks of investing in a KOSDAQ venture fund?
Because a large part of the assets is invested in venture companies and small KOSDAQ companies, price volatility from sector and stock concentration is high, and unlisted shares and mezzanine securities carry liquidity risk, as they can be hard to sell when you want to. Mezzanine securities also carry the issuer's credit risk, and the amount of IPO shares allocated varies with competition. Above all, a fund is a performance-based product whose principal is not guaranteed, so check the risk sections of the prospectus or key product description carefully.
Source: Financial Supervisory Service FINE Financial Tips: Points to note when investing in private funds
QHow can I check the fees and charges of a KOSDAQ venture fund?
Management, distribution and custody fees, as well as sales charges and redemption charges, are set for each fund in its collective investment rules and prospectus or product description. Private funds do not have standardized fee structures and may charge performance fees, in which case the larger the gains, the larger the fees, and actual returns may fall short of expectations. Check the hurdle rate, performance fee rate and charges for early redemption before investing.
Source: Financial Supervisory Service FINE Financial Tips: Points to note when investing in private funds
QIf I invest in a private KOSDAQ venture fund, how can I find out how it is being managed?
Under the 2021 private fund reform, the obligation to deliver asset management reports applies to general private funds in which general investors have invested, and items such as the fund's investment strategy, liquidity risk, and management risks and how they are managed were added to the reports. The distributor uses the asset management report to check whether the fund is being managed in line with the key product description, and the trust company monitors whether investment instructions comply with laws, the collective investment rules and the description. Investors can review the fund's status using this report together with the key product description.
QHow do business development collective investment vehicles (BDCs) differ from KOSDAQ venture funds?
According to Financial Services Commission materials, KOSDAQ venture funds invest at least 50% of fund assets in shares, CBs and the like of venture companies (including listed ventures) or KOSDAQ small, medium and mid-sized companies within 7 years of losing venture status, and receive an income deduction and priority allocation of KOSDAQ IPO shares as incentives. BDCs are public funds that invest at least 60% of total assets in venture and KONEX companies, KOSDAQ companies with small market capitalizations, stakes in venture funds and the like, and are listed on the exchange so that general investors can buy and sell them. Another difference is that a BDC is a listed public fund, whereas a KOSDAQ venture fund can be set up either publicly or privately.
QHow do venture investment associations and start-up and venture private funds differ from KOSDAQ venture funds?
Article 16 of the Restriction of Special Taxation Act lists contributions to venture investment associations and the like, investments in beneficiary certificates of venture company investment trusts, and investments in start-up and venture private collective investment vehicles as separate items eligible for the income deduction. A venture investment association is formed by venture investment companies and others under the Act on the Promotion of Venture Investment, while a KOSDAQ venture fund is an investment trust managed by a collective investment business entity under the FSCMA, so their legal forms and managers differ. Detailed rules, such as the grounds for recovering the deduction, are also set differently for each type, so check the underlying law for each product.
QHow are large securities firms' risk capital obligations related to KOSDAQ venture funds?
In its December 2025 'Measures to Enhance KOSDAQ Market Trust + Innovation', the Financial Services Commission said it would recognize investments in KOSDAQ venture funds and BDCs toward the performance of large investment banks (IBs) that are required to supply risk capital. It noted that, according to their own business plans, the 5 large IBs authorized (designated) to issue promissory notes or offer IMAs had expressed an intention to invest around KRW 1.2 trillion (provisional) in KOSDAQ venture funds and BDCs by 2028. The same announcement also listed raising the cap on KOSDAQ venture fund tax benefits as an item under review, but the details depend on whether laws are later amended.
QAre KOSDAQ venture funds also used in the public-participation National Growth Fund?
According to materials released by the Financial Services Commission in June 2026, the public-participation National Growth Fund allowed KOSDAQ venture funds, which benefit from priority IPO allocation, as sub-funds so as to seek higher returns through participation in the IPO market. The materials describe the KOSDAQ venture fund requirements as investing at least 50% in venture companies or KOSDAQ-listed companies within 7 years of losing venture status and at least 15% in new shares of venture companies, and 3 of the 10 selected sub-funds applied as KOSDAQ venture funds. Check the prospectus of that product for the structure and risks of the public-participation National Growth Fund.
QWhat should I check before investing in a KOSDAQ venture fund?
First, check whether the fund is public or private and whether it is designed to meet the requirements for the income deduction and the separate IPO allocation. Then look at its main investment targets and strategy, such as unlisted venture companies and mezzanine securities, its maturity and redemption restrictions, its fee structure including any performance fees, and whether the asset manager and distributor are regulated financial institutions. If you plan to claim the income deduction, also consider the 3-year holding requirement and your own cash needs.
Source: Financial Supervisory Service FINE Financial Tips: Points to note when investing in private funds
03
Mezzanine, Pre-IPO & SPACs
This section explains how investment instruments other than IPO shares work, including the conversion price, refixing and call option rules and disclosures for listed companies' mezzanine securities (CBs, BWs and EBs), how pre-IPO investments are structured and locked up after listing, and how SPAC escrow funds and mergers work. It is general information, not a recommendation of any product, and because the rules change frequently, be sure to check the issuance disclosures and securities registration statement of the individual security and the latest laws and regulations.
QWhat exactly are mezzanine securities?
Mezzanine originally refers to an intermediate floor between the first and second floors of a building, and in finance it refers to securities that sit between bonds and shares. Korea Financial Investment Association (KOFIA) guidelines define mezzanine securities as all securities in an intermediate form between shares and bonds, such as convertible bonds (CBs), exchangeable bonds (EBs), bonds with warrants (BWs), convertible preferred shares and redeemable convertible preferred shares (RCPS). What they have in common is that they start out as bonds or preferred shares but carry a right to turn into, or receive, shares under set conditions.
QWhy do companies and investors use mezzanine financing?
In materials for a 2018 forum on the development of private funds, the Financial Services Commission explained that growth-stage companies often prefer medium- to long-term mezzanine investment over short-term loans or equity investment in order to keep control of management. It also noted that investors tend to prefer investing through mezzanine instruments first and converting to equity once the company's growth is confirmed, rather than acquiring equity from the outset. This is only a structural feature, however, and mezzanine securities still carry both the issuer's credit risk and the risk of a falling share price.
QHow are mezzanine securities valued?
KOFIA guidelines require the fair value of mezzanine securities to be measured by splitting it into a bond value and an option value. The bond value is calculated from the coupon rate, the guaranteed yield to maturity, the remaining maturity and a discount rate matching the issuer's credit rating, while the option value is calculated from the current share price, share price volatility, and the exercise prices and exercise periods of the conversion right, the early redemption right and the call option (right to demand sale). As a result, the value of a mezzanine security changes not only with interest rates and credit quality but also with the share price and its volatility.
QHow do the coupon rate and the yield-to-maturity rate of a convertible bond differ?
The coupon rate is the rate of interest paid at set intervals while you hold the bond, whereas the yield-to-maturity rate (guaranteed yield to maturity) is the annual yield guaranteed if you hold the bond to maturity without exercising the conversion right. When the yield-to-maturity rate is set higher than the coupon rate, the amount corresponding to the difference is usually paid on top of the principal at redemption (a redemption premium). KOFIA guidelines likewise calculate the bond value of mezzanine securities based on contract terms such as the coupon rate, the guaranteed yield to maturity and the interest payment frequency, and in either case you can receive the payments only if the issuer remains able to repay.
QHow is the conversion price of a listed company's convertible bond determined?
Under the Regulations on Securities Issuance and Disclosure, etc., a listed company's conversion price must be at least the highest of the following, counted back from the day before the board resolution: (1) the arithmetic mean of the 1-month, 1-week and latest-day weighted average share prices, (2) the latest-day weighted average share price, and (3) the weighted average share price on the third trading day before the subscription date (or the payment date if there is no subscription date). For a general public offering it may be set at or above the lowest of these, and for bonds rated speculative grade (BB+ or below) by two or more credit rating agencies, among others, it may be set at 90% or more of the calculated price. For a third-party allotment, item (3) does not apply if less than 1 month passes between the board resolution and the payment date, and if 1 month or more passes, the share price on the third trading day before the actual payment date must be reflected (as of October 2026).
QHow far can the conversion price be lowered when the share price falls?
To refix (lower) the conversion price because of a fall in the market price, the board must set out the grounds, the adjustment dates and the specific adjustment method in advance when the bond is issued, and the adjusted conversion price must be at least 70% of the conversion price at issuance and also at least the market-based price recalculated as of the day before the adjustment date. To go below 70%, the articles of incorporation must make conversion price adjustments a matter for a special resolution of the general meeting of shareholders, and the general meeting must specifically set the minimum adjusted price and the bond amount when the bond is issued. An amendment that took effect in December 2024 narrowed this exception to cases where a special resolution of the general meeting is obtained for each issuance.
QWhat happens if the share price rises again after the conversion price has been refixed downward?
If a listed company's privately placed convertible bond includes a condition for lowering the conversion price when the market price falls, the board must also set out, at issuance, that the conversion price will be adjusted upward on the adjustment dates if the market price rises again, together with the specific method. The raised conversion price is set within a range that does not exceed the conversion price at issuance and is not below the same floor that applies to downward adjustments. This rule was introduced by a 2021 amendment, and the upward adjustment requirement does not apply to convertible bonds issued through a public offering.
QHow does the conversion price change when there is a rights issue, a stock dividend or a capital reduction?
When the conversion price is lowered for reasons other than market price movements that reduce share value, such as a capital increase or stock dividend, it may be lowered only to a price at or above one calculated by applying the ratio by which share value fell for that reason (introduced in December 2024). Conversely, when an event that raises share value occurs, such as a capital reduction or reverse stock split, a listed company must issue convertible bonds on terms that raise the conversion price by the corresponding adjustment ratio. These rules also apply mutatis mutandis to bonds with warrants, so check the adjustment clauses of each bond in its issuance disclosure.
QWhat is the call option (right to demand sale) on a convertible bond, and what limits apply?
A call option is the right of the issuer or a person it designates to demand that bondholders sell the convertible bond at a set price; the regulations call it a 'convertible bond purchase option', and in practice it is also called a right to demand sale. When a listed company grants this right to its largest shareholder or their specially related persons (including when the company sells convertible bonds it has acquired to them), the bond must carry a condition preventing them from acquiring, through the call option, shares in excess of their respective shareholding ratios at the time of issuance. This limit was introduced by a 2021 amendment to keep the call option from being used as a way for the largest shareholder to increase its stake.
QHow were convertible bond disclosures and rules strengthened at the end of 2024?
The Financial Services Commission amended the Regulations on Securities Issuance and Disclosure, etc., with effect from December 1, 2024. When a company designates who will exercise a call option or transfers a call option to a third party, it must disclose the specific exerciser, whether consideration was exchanged and the amount paid, among other things, in a major matters report. In addition, when a company acquires its convertible bonds before maturity, it must disclose the reason for the acquisition and how it will handle them going forward, such as cancellation or resale, and the reference date was clarified so that the conversion price of privately placed convertible bonds reflects the market price on the day payment is actually made.
QIf a bond has an early redemption right (put option), is the principal guaranteed?
No. An early redemption right is merely the investor's right to demand repayment at set times; to actually get the money back, the issuer must be able to repay at that point. KOFIA guidelines provide that, when valuing mezzanine securities held by a fund, a C rating is applied across the board if there is no valid credit rating and the credit risk grade cannot be estimated, and in that case the early redemption right is treated as practically impossible to perform and is not reflected in the fair value. In other words, the value of a put option ultimately depends on the issuer's creditworthiness.
QWhat is an 'acceleration event' (loss of the benefit of term) in a mezzanine contract?
Loss of the benefit of term means that when a ground set out in the contract occurs, the issuer loses the benefit of being able to defer repayment until maturity, and the investor becomes able to demand immediate repayment of principal and interest. KOFIA guidelines require the contracts for mezzanine securities in which funds invest to include provisions on acceleration, and require information related to acceleration, such as trading suspensions, audit opinions and designation as an administrative issue, to be reflected in valuations in a timely manner. The specific grounds and procedures differ from contract to contract, so it is important to check the contract terms before investing.
QWhat is the difference between detachable and non-detachable BWs?
Among bonds with warrants (BWs), those whose bond and warrant (right to subscribe for new shares) can be separated and transferred independently are called detachable, and those that can only be transferred together are called non-detachable. With a detachable BW, a separate warrant certificate is issued, so it is possible to sell the bond and keep only the warrant, or vice versa. The FSCMA prohibits stock-listed corporations from issuing, by private placement, bonds whose warrant certificates alone can be transferred, that is, detachable BWs, so listed companies can issue detachable BWs only through public offerings.
QDo I have to pay separately when exercising the warrant of a BW?
In principle, yes. Under the Commercial Act, a person who wishes to exercise a warrant must submit a request and pay the full issue price of the new shares, and becomes a shareholder upon payment. However, where the issuance terms so provide, payment may be deemed made at the issue price in lieu of redemption of the bond with warrants instead of in cash (payment by substituting the bond), in which case that amount of the bond is treated as redeemed. In addition, the total issue price of the shares to be issued through the warrants attached to each bond cannot exceed the amount of that bond.
Source: Commercial Act, Articles 516-2 (Issuance of Bonds with Warrants) and 516-9 (Exercise of Warrants)
QCan a company issue convertible bonds only to specific investors?
Yes, but there are requirements. Under the Commercial Act, when issuing convertible bonds to persons other than shareholders, if the articles of incorporation do not set out the amount of convertible bonds that may be issued, the conversion terms, the details of the shares to be issued on conversion and the conversion request period, these must be decided by a special resolution of the general meeting of shareholders. In addition, as with a third-party allotment of new shares, it is limited to cases where it is necessary to achieve the company's business purposes, such as introducing new technology or improving its financial structure, and the same requirements apply to bonds with warrants. These procedures exist because existing shareholders' stakes may be diluted.
Source: Commercial Act, Article 513 (Issuance of Convertible Bonds)
QWhy do privately placed convertible bonds of listed companies carry a 1-year resale restriction?
Even if securities are privately placed with fewer than 50 persons, they are treated by law as a public offering, requiring a securities registration statement, if they could be transferred to 50 or more persons within 1 year of issuance. Bonds convertible into a listed company's shares can fall under these resale criteria, so to avoid this, measures must be taken such as depositing (electronically registering) the bonds with the Korea Securities Depository immediately after issuance under an agreement not to withdraw or sell them for 1 year, or setting the period during which the rights cannot be exercised at 1 year or more after issuance. The regulations also allow issuing fewer than 50 certificates with a special clause prohibiting their division within 1 year. Because of these conditions, privately placed convertible bonds are difficult to transfer freely to others for a certain period after issuance.
QCan a listed company in a management control dispute issue privately placed convertible bonds?
This is restricted. During the period from when minority shareholders request the convening of a general meeting, or apply to the court for permission to convene one, to dismiss officers until the dismissal is decided; while litigation related to a management dispute is pending, such as a suit to suspend an officer's duties or to invalidate or cancel a resolution of the general meeting; and while proceedings are under way after a comparable control dispute has been reported and disclosed, the company cannot issue convertible bonds other than by shareholder allotment or general public offering. This rule also applies mutatis mutandis to bonds with warrants. It is a safeguard to keep convertible bonds from being allotted to particular persons to change the ownership structure during a dispute.
QWhy are most listed companies' convertible bonds issued by private placement?
Privately placed convertible bonds can be issued with only a board resolution (and the filing of a major matters report) without submitting a securities registration statement, so the procedure is simpler than a public offering, which requires review of a registration statement. According to the Financial Supervisory Service, of the convertible bonds issued in 2021, 598 were private placements and 3 were public offerings. On the other hand, because there is no process of detailing the use of funds and risk factors and having them reviewed as in a registration statement, the FSS has stepped up disclosure reviews and investigations, noting that privately placed convertible bonds can be abused for unfair trading.
QWhen and where can I find out that a listed company is issuing convertible bonds?
When a company required to file business reports decides to issue convertible bonds, exchangeable bonds or bonds with warrants, it must submit a major matters report to the Financial Services Commission by the earlier of the day after the decision and 1 week before the payment date (except where it files a securities registration statement for a public offering). The report can be viewed on the Financial Supervisory Service's electronic disclosure system (DART) and contains the issuance terms, such as the type and amount of the bonds, interest rates, conversion terms and payment method. Before making an investment decision, it is a good idea to check the original disclosure and any subsequent amendments yourself.
QWhat is 'payment in kind', where convertible bonds are paid for with assets instead of cash?
Payment in kind means a company receives the proceeds of convertible bonds or bonds with warrants in the form of physical assets, such as unlisted shares, real estate or intangible assets, instead of cash. After the amount of such issuances (planned) by KOSPI and KOSDAQ companies grew sharply from KRW 259.4 billion in 2019 to KRW 1.1765 trillion in 2022, the Financial Supervisory Service revised the major matters report form with effect from April 7, 2023 to require the payment method (cash/other) to be stated, and, in the case of payment in kind, details of the contributed assets and their valuation method and, where they are shares of an unlisted company or similar, an overview and financial information of that company. Investors should use these disclosures to check whether the value of the contributed assets is appropriate.
QWhat kinds of cases have there been of privately placed convertible bonds being abused for unfair trading?
In the targeted investigation into unfair trading exploiting privately placed convertible bonds that the Financial Supervisory Service announced in 2023 (40 cases investigated), 32 of the 40 cases involved suspected fraudulent trading in which the share price was pushed up through false announcements of entry into a fashionable theme business or by feigning large-scale investment, after which the converted shares were sold at high prices. Cases were also found of concealing the provision of collateral or the use of borrowed funds, disclosing issuances with no realistic prospect of payment, and hiding the real acquirer through investment partnerships and the like (27 of the 40 cases). If a company frequently discloses convertible bond issuances or keeps announcing new businesses, it is worth carefully checking how the funds are used, who the acquirers are and whether payment was actually made.
QWhy is a large amount of outstanding convertible bonds said to weigh on the share price?
When convertible bonds are converted into shares or the warrants of bonds with warrants are exercised, new shares are issued and existing shareholders' ownership ratios fall, which is called dilution. Unconverted bonds that can already be converted may come onto the market as sell orders at any time and are often called an overhang (potential selling supply), and when refixing lowers the conversion price, the number of shares to be received rises and the dilution grows larger. This is also why KOFIA's best practice standards require managing underwriters of public offerings to check, as material on share price dilution risk, the issuance and exercise status of equity-linked bonds and stock options whose exercise periods have not yet ended.
QHow are the shares to be delivered under an exchangeable bond secured and held?
Because an exchangeable bond is exchanged for securities held by the issuer, such as shares of another company, the board decides the type and details of the shares or securities to be exchanged, the exchange terms and the exchange request period. Under the Enforcement Decree of the Commercial Act, the issuer must deposit the shares or securities needed for the exchange with the Korea Securities Depository or register them electronically with an electronic registration institution until a bondholder requests an exchange or the exchange request period ends, and that institution manages them with an indication that they are trust property. This is a safeguard that sets the exchangeable securities aside in advance so that exchange requests can be met.
Source: Enforcement Decree of the Commercial Act, Article 22 (Issuance of Exchangeable Bonds)
QCan a company issue exchangeable bonds that are exchangeable into its own treasury shares?
As of October 2026, it cannot. According to the Financial Services Commission, the amended Commercial Act completely prohibits the issuance of exchangeable bonds (EBs) whose underlying securities are treasury shares, and accordingly the related provisions were deleted by an amendment to the Enforcement Decree of the FSCMA that took effect on June 30, 2026, with subordinate rules such as the Regulations on Securities Issuance and Disclosure, etc. revised at the same time. The aim is to prevent exchangeable bonds from being used as an expedient to circumvent the obligation to cancel treasury shares. For details such as the treatment of bonds already issued, check the relevant laws and the company's disclosures.
QHow do mezzanine securities of listed and unlisted companies differ?
Chapter 5 of the Regulations on Securities Issuance and Disclosure, etc., titled 'Special Provisions for Stock-Listed Corporations', applies rules such as the method for calculating the conversion price, the refixing floor, the 1-year (1 month for public offerings) conversion prohibition after issuance and the limit on exercising call options to the convertible bonds and bonds with warrants of listed companies. Shares received on conversion of a listed company's mezzanine security can be sold on the exchange, but these special provisions do not apply to an unlisted company's mezzanine securities, and the converted shares are hard to sell in the market until the company lists. That is why, for unlisted companies' mezzanine securities, the conversion and redemption terms in the contract and the route for recovering the investment need to be checked even more carefully.
QHow are the maturity and investor eligibility of private funds investing in mezzanine securities determined?
When the Financial Services Commission and the Financial Supervisory Service announced the direction of private fund reforms in 2020, they explained that funds with a high proportion of illiquid assets that are hard to sell immediately, such as privately placed bonds and mezzanine securities, are generally set up as closed-end funds with maturities of usually 2 to 3 years. This is because a maturity mismatch, which makes it hard to meet redemption requests, can arise if the fund's maturity is shorter than when its assets can be recovered or if it allows redemption at any time. In addition, general private funds may be sold only to qualified investors as defined by law, so check the fund's maturity, redemption terms and investor eligibility requirements before subscribing.
QHow is pre-IPO investment usually made?
Pre-IPO investment broadly takes three forms: subscribing, through a third-party allotment, for new shares issued by a company preparing to list; buying existing shares held by current shareholders such as the largest shareholder; and investing in equity-linked securities such as convertible bonds or redeemable convertible preferred shares. The Korea Exchange's listing rules set whether, and for how long, mandatory holding applies after listing depending on how the shares were acquired, and the 'shares, etc.' subject to mandatory holding include not only share certificates but also bonds such as CBs, BWs and EBs. Because the timing of a possible exit can differ depending on how you invested, you should check the investment structure first.
Source: Korea Exchange 2025 KOSPI Market Listing Review Guidebook (pp. 70-79)
QWhat is required for an unlisted company to issue new shares to specific investors?
Under the Commercial Act, shareholders in principle have the right to be allotted new shares in proportion to the shares they hold, so allotting new shares to investors who are not shareholders (a third-party allotment) requires a basis in the articles of incorporation. It is also limited to cases where it is necessary to achieve the company's business purposes, such as introducing new technology or improving its financial structure, and the company must notify shareholders or give public notice of matters such as the class and number of new shares, the issue price and the payment date at least 2 weeks before the payment date. Since existing shareholders' stakes are diluted, it is also worth checking, when making a pre-IPO investment, that these procedures were properly followed.
QWhen can shares acquired pre-IPO be sold after listing?
For the KOSPI market (Korea Exchange 2025 guidebook), a person who acquired shares, etc. issued by the company through a third-party allotment within 1 year before the preliminary listing review application must hold them for 1 year from the issue date, and if that date falls within 6 months of the listing date, until the date 6 months after listing. A person who bought shares, etc. held by the largest shareholder and related persons during the same period is subject to mandatory holding for 6 months from the listing date, which is intended to prevent the largest shareholder from avoiding mandatory holding by selling shares just before listing. Check the actual periods in the rules for each market and listing type and in the securities registration statement.
Source: Korea Exchange 2025 KOSPI Market Listing Review Guidebook (pp. 70-79)
QAre venture capital firms and professional investors that invested before a KOSDAQ listing also subject to mandatory holding?
According to the Korea Exchange's guidance on KOSDAQ listing review, venture finance firms and professional investors whose investment period is less than 2 years as of the preliminary listing review application date (excluding shares, etc. acquired through public offerings or sales) must hold their shares for 1 month to prevent short-term trading gains, applied to each within a limit of 10% of the company's capital as of the listing application date. Shares, etc. that they newly acquired through a third-party allotment and held until the review application date follow this standard instead of the 6-month mandatory holding applied to ordinary third-party allotment acquirers. For new shares received on conversion of convertible bonds or exercise of warrants, whether mandatory holding applies is judged based on when the bond was acquired, not when the new shares were acquired.
Source: Korea Exchange 2026 Understanding and Practice of KOSDAQ Listing Review (pp. 41-55)
QWhat are redeemable convertible preferred shares (RCPS), and why are they widely used in pre-IPO investment?
RCPS are preferred shares that combine the features of convertible shares, which can be converted into another class of shares, and redeemable shares, which the company can retire out of its profits after a certain period from issuance. The Korea Exchange explains that venture finance firms often use them when investing in venture companies, and that from the investor's point of view they reduce investment risk because the investor can choose whether to exercise the redemption right or the conversion right. Most carry a special clause for resetting the conversion ratio (refixing), and provisions on participation in management, such as voting rights, are often included in the articles of incorporation and the investment agreement. However, since redemption is made out of the company's profits, it may be hard to get money back even with a redemption right if the company has no profits available for redemption.
Source: Korea Exchange 2026 Understanding and Practice of KOSDAQ Listing Review (pp. 143-153)
QHow are redeemable convertible preferred shares handled ahead of a listing?
To protect minority shareholders, the Korea Exchange advises that it is desirable for convertible (redeemable) preferred shares issued by a listing applicant to be converted into common shares before listing, preferably before applying for the preliminary listing review. In particular, if the applicant is in a state of capital impairment, they must in principle be converted before the preliminary review application. The exchange also checks whether RCPS are subject to mandatory holding, and if shares are retired through the exercise of a redemption right during the mandatory holding period, the mandatory holding obligation for them also lapses.
Source: Korea Exchange 2026 Understanding and Practice of KOSDAQ Listing Review (pp. 143-153)
QHow do convertible bonds issued by a company preparing to list affect the listing review and the share price after listing?
The Korea Exchange reviews the possibility that conversion of convertible bonds, etc. issued by a listing applicant could change the largest shareholder, and whether the conversion period, conversion price and post-conversion volume could cause problems for investor protection after listing. It advises that if the conversion request period begins within the span from the review application date to 6 months after preliminary review approval, the company should consider redeeming the bonds (excluding refinancing through new issuance) or applying for review after the conversion period expires, to prevent large-scale selling right after listing. Compliance with procedures such as the issuance limit in the articles of incorporation, whether the issuance amounted to a deemed public offering requiring a securities registration statement, and the appropriateness of the acquirers and the conversion price are also checked.
Source: Korea Exchange 2026 Understanding and Practice of KOSDAQ Listing Review (pp. 143-153)
QAfter passing the preliminary listing review, by when must a company list?
For the KOSPI market, the result of the preliminary listing review is valid for 6 months from the date of notification, and if there is an unavoidable reason such as a sudden change in market conditions, the company may request an extension of the filing deadline by up to 6 months. If the company does not file a new listing application within that period, or if events occur such as a significant management event, false statements or omissions of material matters in the application, sanctions for violating accounting standards, or the issuance of new shares by third-party allotment between the preliminary review application and the listing date, the exchange may refuse to recognize the result. Once it loses effect, the company must undergo the preliminary review again, so pre-IPO investors should also consider the possibility that the listing schedule is delayed or starts over.
Source: Korea Exchange 2025 KOSPI Market Listing Review Guidebook (pp. 261-276)
QHow does the pre-IPO investment price relate to the IPO offer price?
The pre-IPO price is negotiated between the company and investors before listing, whereas the offer price is determined separately at the time of listing through the underwriter's valuation of the company and book-building among institutional investors. According to a Financial Supervisory Service analysis, 94.5% (69 companies) of companies that went public in 2015 set their indicative offer price by applying a certain discount rate to a per-share value calculated using the PER of comparable companies. Depending on market conditions and the share prices of comparable companies at the time of listing, the offer price may be set below the pre-IPO investment price, so you should not assume that a gain will arise simply because the company lists.
Source: Financial Supervisory Service press release: Check these points before investing in IPO shares
QHow do pre-IPO investors usually recover their investment?
The typical route is to sell shares in the market after the mandatory holding period ends following listing, and another is to take part in the sale of existing shares, in which current shareholders sell their shares alongside the IPO offering. According to the Financial Supervisory Service, sales of existing shares accounted for 39.6% of the amount raised in 2016 IPOs, including sales of stakes by largest shareholders and financial investors and disposals of treasury shares. Other routes include selling a stake in a merger or acquisition and demanding redemption under the investment agreement, but if the listing is delayed or falls through, you may not be able to recover your investment when planned.
Source: Financial Supervisory Service press release: Precautions when investing in IPO shares
QWhat rules apply when an unlisted company gathers many pre-IPO investors?
If securities are newly issued (public offering) or already-issued securities are sold (public sale) after soliciting 50 or more investors to acquire them, a securities registration statement must be filed with the Financial Supervisory Service if the amount is KRW 1 billion or more, and small-amount public offering disclosure documents if it is less than KRW 1 billion. A company with a record of public offerings or sales incurs an obligation to file a registration statement as a deemed public offering even when issuing to fewer than 50 persons unless it takes resale restriction measures, and it is also subject to periodic disclosure such as business reports and to filing major matters reports. The FSS has noted that 57 of the 88 companies sanctioned for disclosure violations in 2025 were unlisted, mostly identified during IPO preparations, and that penalty surcharges or restrictions on issuing securities can disrupt listing schedules.
QHow are unlisted shares held by a fund valued?
Because unlisted shares have no reliable market price, they are measured at fair value, and KOFIA guidelines allow reference to the 'Fair Value Measurement Guidelines for Investments in Unlisted Shares' prepared jointly by the Financial Services Commission, the Financial Supervisory Service and the Korea Accounting Standards Board in 2020. The valuation should consider the latest financial statements, changes in capital, business plans and recent prices in transactions with third parties, among other things, and should promptly reflect events such as a merger or IPO subscription, rehabilitation proceedings or capital impairment. Non-marketable assets held by general private funds are in principle valued periodically at least once a year after the initial investment, and also whenever a significant event occurs.
QWhat stages does a SPAC investment go through from listing to merger?
According to a Korea Exchange handbook, a SPAC lists after a public offering and then searches for a merger target; once a target is chosen, it goes through a board resolution on the merger and its disclosure, signing of the merger agreement and filing of a major matters report, and the exchange's preliminary review of the merger listing. If it passes the review, the process is completed by filing a securities registration statement for the merger, convening a general meeting of shareholders and passing a special resolution, accepting appraisal right (share purchase) demands from dissenting shareholders, registering the merger and listing the new merger shares. Once the merger is complete, SPAC investors become shareholders of the merged company and bear changes in that company's value directly.
Source: Korea Exchange 2025 KOSDAQ Market Disclosure and Listing Management Handbook (pp. 302-309)
QFrom when are a SPAC's listing deadline and merger deadline counted?
The Enforcement Decree of the FSCMA requires a SPAC to list the shares from its initial offering on the stock market within 90 days of the payment date for those shares, and to complete registration of a merger with another corporation within 36 months of the same date. At least 90% of the money raised must be deposited or placed in trust with a securities finance company or similar institution by the business day following the payment date, and at least one of the promoters must be a dealer in equity securities above a certain size. Note that, under the law, these deadlines are counted from the payment date for the shares of the initial offering.
QHow much of a SPAC must the securities firm that set it up hold, and when can it sell?
According to the Korea Exchange, the total investment (shares and equity-linked bonds) of the securities firm serving as lead promoter must be at least 5% of the SPAC's total issuance (shares and equity-linked bonds). In addition, the shares invested by the securities firm that is a founding shareholder (the listing sponsor) must be held for 6 months after the merger. This reflects the fact that the securities firm's own money is invested alongside, partly aligning its interests with those of public shareholders, and is designed to have it monitor the company's operations for a certain period after listing.
Source: Korea Exchange 2026 Understanding and Practice of KOSDAQ Listing Review (pp. 211-221)
QWhere are a SPAC's escrowed funds held, and when can they be withdrawn?
Under the Regulations on Financial Investment Business, a SPAC must deposit or place in trust an amount equal to at least 90% of the issue amount of the shares issued from its initial offering onward with a securities finance company or a trust company, excluding institutions that are pre-offering shareholders or their specially related persons. Before the merger is registered, these funds cannot be withdrawn or pledged as collateral, and they may be withdrawn only to pay the purchase price for appraisal right demands by shareholders opposing the merger, or to make payments to public shareholders when a ground for dissolution arises. Grounds for dissolution include failing to list by the deadline, failing to complete merger registration by the deadline, and delisting (except where another corporation is listed as a result of the merger).
QWhat happens if a SPAC's deadline approaches with no merger in sight?
For the KOSDAQ market, if a SPAC does not apply for the preliminary review of a merger listing at least 6 months before the expiry of its duration set in its articles of incorporation (described in a Korea Exchange handbook as within 30 months after the IPO), it is designated an administrative issue, and if it still does not apply within 1 month after the designation, this becomes a ground for delisting. Ultimately, if it cannot complete a merger by the deadline, the SPAC goes through dissolution procedures under its articles of incorporation. Meanwhile, SPACs are not allowed to apply for voluntary delisting, on the grounds that their duration is short and exit mechanisms such as market liquidity and appraisal rights are in place.
Source: Korea Exchange 2025 KOSDAQ Market Disclosure and Listing Management Handbook (pp. 310-320)
QHow can a shareholder who opposes a SPAC merger get their money back?
A shareholder who opposes a listed company's board resolution on a merger can notify the company in writing of their opposition before the general meeting of shareholders and then, within 20 days of the date of the shareholders' resolution, demand in writing, stating the class and number of shares, that the company purchase their shares. The company must buy the shares within 1 month from the end of the demand period; the purchase price is set by agreement, and if no agreement is reached, it is calculated by a method set in the Enforcement Decree based on prices traded on the stock market before the date of the board resolution, and if either side still objects, it may ask a court to decide. In principle, the right covers shares acquired before the board resolution was disclosed, so shares bought after the merger was announced may be excluded.
QCan a SPAC's pre-offering shareholders (such as promoters) vote on the merger or exercise appraisal rights?
This is restricted. The Korea Exchange's listing rules prevent a SPAC's pre-offering shareholders, etc. from exercising voting rights and appraisal rights in connection with a merger, and proceeding with a merger in breach of this is a ground for delisting. When disclosing the results of the merger shareholders' meeting, a SPAC must also state whether pre-offering shareholders, etc. exercised voting rights or purchase demands, whether the merger value is at least 80% of the escrowed funds, whether there is a special interest relationship with the merger target, and who is subject to post-merger sale restrictions and for how long. This mechanism ensures that the will of shareholders who joined through the public offering is reflected in whether the merger goes ahead.
Source: Korea Exchange 2025 KOSDAQ Market Disclosure and Listing Management Handbook (pp. 291-301)
QDoes trading in a SPAC's shares stop when it announces a merger?
Yes. Where a preliminary review of the merger listing is required, such as a merger with an unlisted company, the exchange suspends trading in the SPAC's shares from the time the merger resolution is disclosed until the date the preliminary review result is notified. This is to prevent sharp price swings and unfair trading such as insider trading during the review period. If an ineligibility result is notified, the suspension continues until a resolution to abandon the merger is passed, and if the merger decision is withdrawn before the result is notified, trading resumes from the day after the withdrawal.
Source: Korea Exchange 2025 KOSDAQ Market Disclosure and Listing Management Handbook (pp. 302-309)
QWhat is the difference between a 'SPAC-surviving merger' and a 'SPAC-dissolving merger'?
In a SPAC-surviving merger, the listed SPAC absorbs the unlisted company, so the SPAC's listing is maintained, the new merger shares are additionally listed and the company name is changed, among other things. In a SPAC-dissolving merger, the unlisted company survives and absorbs the SPAC, so the SPAC is delisted and the unlisted company's shares are newly listed. Previously only surviving mergers were permitted, but in consideration of the inconvenience of the unlisted company losing its legal personality and track record, the listing rules were amended in August 2021 to allow dissolving mergers from February 2022.
Source: Korea Exchange 2025 KOSDAQ Market Disclosure and Listing Management Handbook (pp. 302-309)
QHow is the merger ratio between a SPAC and an unlisted company determined?
The merger ratio is determined by each company's merger value, and the merger value of an unlisted corporation is in principle calculated using the formula in the Enforcement Decree of the FSCMA, that is, by taking the arithmetic mean of a value weighting asset value and earnings value at 1 to 1.5 and the relative value. However, the Korea Exchange explains that, to facilitate SPAC mergers, it leaves the valuation of the unlisted corporation to the parties' discretion if certain requirements are met. The higher the unlisted company's merger value is set, the lower the stake existing SPAC shareholders hold after the merger, so it is important to check the valuation basis in the securities registration statement for the merger.
Source: Korea Exchange 2026 Understanding and Practice of KOSDAQ Listing Review (pp. 222-233)
QWhich companies can a SPAC not merge with?
For the KOSDAQ market, a SPAC cannot resolve to merge with a corporation that received an ineligibility notice in the preliminary review of the merger listing, a corporation whose merger value and total assets at the end of the latest fiscal year fall short of the listing rule threshold (80% of the escrowed funds), a listed corporation designated as an administrative issue, or a corporation that has a special interest relationship with the pre-offering shareholders, officers and the like. Resolving to merge with such a corporation leads to a trading suspension and is a ground for delisting. A merger resolution under which a new company is established or the SPAC becomes an unlisted corporation is subject to the same restriction, except for a merger listing using the SPAC-dissolving method.
Source: Korea Exchange 2025 KOSDAQ Market Disclosure and Listing Management Handbook (pp. 310-320)
QCan a loss-making company list through a SPAC merger?
The review of a SPAC merger is based on the general new listing criteria, but the special tracks for not-yet-profitable companies and business-model companies do not apply, because the listing sponsor cannot perform a put-back option. On the other hand, if the merger target is a technology growth company, it can be reviewed under the technology assessment special requirements, but foreign companies and business-model special-track companies are excluded as merger targets. In addition, a merger in which all or part of the merger consideration is paid in cash is not accepted (KOSDAQ market, based on Korea Exchange guidance for 2026).
Source: Korea Exchange 2026 Understanding and Practice of KOSDAQ Listing Review (pp. 211-221)
QWhat should I watch out for when buying listed SPAC shares on the exchange?
A SPAC is a company with no business operations whose sole purpose is a merger, so if the merger falls through and it dissolves, the amount returned is based on the escrowed funds, and investors who bought at a higher price in the market may incur losses. A Korea Exchange handbook describes a case in which a SPAC rose 113% after hitting the upper price limit on 4 of its first 8 trading days, was designated an investment warning issue and, in response to an inquiry disclosure request, stated that no merger was in progress, as well as a case in which an investigation was opened into allegations that people connected with a merger target bought up SPAC shares before the announcement. Prices driven only by merger expectations can swing widely, so check the disclosures and judge carefully.
Source: Korea Exchange 2025 KOSDAQ Market Disclosure and Listing Management Handbook (pp. 302-309)
QWhat is post-IPO investment, and what should I check for recently listed companies?
Post-IPO investment is not a legal term; it is a common name for a strategy of investing in companies within a certain period after they list. In the early period after listing, the volume of tradable shares can increase as institutional investors' lock-up commitment periods end, so the Financial Supervisory Service advises investors to check the lock-up commitments by period in the amended securities registration statement filed after book-building (before subscribing) and in the report on securities issuance results (after allocation), to estimate the volume of shares that may become tradable after listing. It is also worth checking whether there are potential shares, such as convertible bonds or redeemable convertible preferred shares issued before listing that have not yet been converted.
04
Private Funds & Qualified Investors
This section explains the types of private funds, the requirements for qualified investors, sales procedures and investor safeguards, and the main risks, based on laws and regulations and materials from the financial authorities. Because the private fund regime is amended frequently, please also check the latest laws and regulations and the documents for each individual fund.
QWhat is a private fund?
A private fund (private collective investment vehicle) is a fund that issues its collective investment securities only by private placement; under the FSCMA, it is a collective investment vehicle with a total of 100 or fewer investors. Since October 2021, private funds have been divided into institutional-only private funds, in which only institutional investors and similar investors may invest, and all other funds, which are general private funds. Regulation is lighter than for public funds, but in return only investors capable of bearing the risk may invest.
QHow do public funds and private funds differ?
A public fund raises money from investors through public offerings or public sales and is subject to strict investor protection rules, including investment rules such as diversification requirements, the obligation to explain and deliver a prospectus, and external audits. A private fund raises money from a small number of investors by private placement, and these rules are waived or relaxed for it. The greater freedom in management also means investors bear more responsibility for judging the risks themselves.
Source: Financial Supervisory Service Financial Glossary (FINE): Public Funds and Private Funds
QWhat does selling 'privately' mean legally?
The FSCMA defines soliciting 50 or more investors to subscribe for newly issued securities as a 'public offering', and any solicitation that does not amount to a public offering as a 'private placement'. When counting the 50, people solicited for the same type of securities within 6 months before the solicitation date are added together, but professional investors and related persons such as the largest shareholder and officers are excluded. Even with fewer than 50, cases such as where the securities may be transferred to 50 or more people within 1 year of issuance are treated as a public offering.
QHow many investors can a private fund have?
When the 2021 amendment to the FSCMA took effect, the cap on the number of investors in a private fund changed from '49 or fewer' to '100 or fewer'. However, the public offering rules remain unchanged, so the number of general investors in a private fund is still limited to 49 or fewer. Some institutional investors, such as pension funds and financial companies, are excluded from the count, and there are detailed counting rules, such as adding in the investors of another fund that holds 10% or more of the fund's interests.
QHow do general private funds and institutional-only private funds differ?
With the 2021 reform, private funds came to be classified not by their management purpose (professional investment type or management participation type) but by the range of eligible investors. A general private fund is open to professional investors and to general investors who invest at least the minimum investment amount (qualified investors), and it is managed by a private fund manager that is a financial investment business entity. An institutional-only private fund is open only to certain professional investors, such as pension funds and financial companies, and is managed by a managing partner (GP). The investment rules for the two types have been unified.
QWhat were the key points of the 2021 private fund reform?
To prevent a repeat of private fund scandals such as Lime and Optimus and to strengthen the supply of risk capital, the FSCMA and its subordinate regulations were amended, taking effect on October 21, 2021. Private funds were reorganized into general and institutional-only funds, and safeguards were strengthened for general private funds in which general investors invest, including delivery of a key product description, oversight of management by distributors and trustees, and more items required in asset management reports. At the same time, the investment rules were unified to give managers more autonomy.
QWho is a qualified investor?
A qualified investor is an investor who may invest in a general private fund. Under the FSCMA, qualified investors are (1) professional investors as defined by law and (2) individuals, corporations and others that invest at least the minimum investment amount set by law. A general private fund may issue collective investment securities only to qualified investors, and the distributor must verify whether an investor is a qualified investor.
QWhat is the minimum amount an individual must invest in a general private fund?
Individuals and corporations that are not professional investors must invest at least a minimum amount set according to the fund's level of leverage. Under the Enforcement Decree, the minimum is KRW 300 million for funds whose combined derivatives risk exposure, borrowing and the like do not exceed 200% of net assets, and KRW 500 million for funds above 200%. Each fund may set a higher minimum subscription amount, so check the terms of the fund concerned.
QWhy was the minimum investment for private funds raised to KRW 300 million?
As a follow-up to the measures introduced after the 2019 derivative-linked fund (DLF) crisis, the FSCMA Enforcement Decree was amended to raise the minimum private fund investment for general investors from KRW 100 million to KRW 300 million or more. The amendment took effect on February 9, 2021. The aim is to keep products that are hard to understand or carry a high risk of loss from being sold widely to general investors in the form of private funds.
QWho counts as a professional investor?
A professional investor is an investor regarded as able to bear investment risk in light of their expertise in financial investment products, the size of their assets and similar factors. The law lists the State, the Bank of Korea, financial companies such as banks, insurers and financial investment firms, and stock-listed corporations, among others, and corporations and individuals that meet certain requirements can also become professional investors. Investors who are not professional investors are called general investors.
Source: Financial Supervisory Service Financial Glossary (FINE): Professional Investor
QCan an individual become a professional investor?
Yes, if they meet the requirements. The Enforcement Decree recognizes as a professional investor an individual who, for at least 1 of the last 5 years, held financial investment products specified by the Financial Services Commission with an average month-end balance of KRW 50 million or more, and who meets income or asset criteria or financial expertise requirements. At the time of the November 2019 reform, the criteria were any one of personal income of KRW 100 million or more (KRW 150 million combined with a spouse), net assets of KRW 500 million or more excluding one's residence and the like, or finance-related expertise such as being an accountant or lawyer; the detailed criteria may change.
QWhere do I apply to be designated an individual professional investor?
Since the reform on November 21, 2019, individual professional investor designation has been handled not by the Korea Financial Investment Association but by financial investment business entities (securities firms) specified by the Financial Services Commission. Under the criteria at the time of the reform, financial investment business entities with assets of KRW 100 billion or more that engage in dealing in securities and similar instruments receive the investor's supporting documents and review whether the requirements are met. Proof of meeting the requirements must be kept current (within 2 years).
QWhat requirements must a corporation meet to be designated a professional investor?
A corporation or organization with a financial investment product balance of KRW 10 billion or more (KRW 5 billion for stock companies subject to external audit) may apply to the Korea Financial Investment Association for professional investor designation. Applications can be made online only, with documents such as an application form, a certificate of all registered matters and a certificate of the financial investment product balance. The designation is valid for 2 years and must be applied for again when it expires.
QWhat changes when you become a professional investor?
The suitability and appropriateness principles and the duty to explain, which apply to general investors, do not apply to professional investors (the prohibition on unfair solicitation still applies). On the other hand, professional investors are excluded from the count of solicited persons when determining whether an offering is public or private, and their investment opportunities widen, for example by being able to take part in products and markets reserved for professional investors. Keep in mind that as protections decrease, your responsibility for your investment decisions increases.
QCan professional investors be protected like general investors?
Certain professional investors may notify a financial investment business entity in writing that they wish to be treated as general investors, and the firm must agree unless it has a justifiable reason not to. Once it agrees, the investor is regarded as a general investor and the protective provisions apply. However, some professional investors, such as the State, the Bank of Korea and financial institutions, cannot switch in this way.
QWho can invest in an institutional-only private fund?
In principle, the limited partners (LPs) of an institutional-only private fund must not be individuals and are restricted to investors with expertise and risk management capabilities. Typical examples include the State, the Bank of Korea, financial companies and special corporations, funds and mutual aid associations established by law, and stock-listed corporations that meet certain requirements and have registered with the association. There are some exceptions prescribed by law, such as officers and investment managers of the managing partner (GP).
QWhat are the GP and LP of an institutional-only private fund?
An institutional-only private fund consists of one or more unlimited liability partners and one or more limited liability partners, with no more than 100 partners in total. The managing partner (GP), designated in the articles of association from among the unlimited liability partners, carries out the fund's business, while the limited liability partners (LPs) are investors who have contributed capital and may not be involved in management, for example by exercising voting rights on shares held by the fund. A GP that intends to manage fund assets must register with the Financial Services Commission.
QHave management-participation private funds (PEFs) disappeared?
With the October 2021 reform, the former management-participation private funds (PEFs) became institutional-only private funds, and the former professional-investment private funds became general private funds. Requirements that applied to the former PEFs, such as the obligation to acquire 10% or more of voting shares, were abolished; instead, a rule was introduced requiring a fund that comes to hold 10% or more of a company's shares for management participation purposes to dispose of them within 15 years. The term 'PEF' is still commonly used to refer to institutional-only private funds.
QCan private funds advertise?
Investment advertising for general private funds is heavily restricted. Distributors may advertise only to professional investors or to general investors whose financial investment product balance on the day before the advertisement is at least a certain amount (KRW 300 million for funds with leverage of 200% or less, and KRW 500 million for funds above that). In addition, they must inform those investors individually by letter, telephone, email or similar means, rather than in a way that is open to the general public.
QWhat is the sales process for a general private fund?
The distributor must first verify whether the investor is a qualified investor. The asset manager prepares a key product description and provides it to the distributor, which must review it in advance, deliver it to general investors, and use it when soliciting and selling the investment. After selling to general investors, the distributor checks whether the fund is being managed in line with the description.
QIs my investment profile (suitability) checked when I invest in a private fund?
The Financial Consumer Protection Act provides that, in principle, the suitability and appropriateness principles do not apply when private funds are sold. However, they do apply if a general financial consumer among qualified investors, or a similar person, requests it, and the seller must inform them in advance that they can make this request. If you want confirmation that the product fits your investment objectives and financial situation, you can ask for these principles to be applied.
QWhat is a key product description?
A key product description is a document prepared by the asset manager issuing a general private fund and provided to the distributor. It sets out the names of the fund, the asset manager, the trust company and the general administration company; the investment objective, strategy, policy and target assets; the degree of risk and the risk factors involved in management; and matters concerning redemption. The distributor must deliver it to general investors in writing, by post or email, by mobile text message, or by similar means.
QWhat does the distributor check in the key product description?
Before selling, the distributor must verify whether the key product description is consistent with the collective investment rules, whether the risks of the investment have been assessed and stated objectively and appropriately, and whether the management method is explained in a way investors can understand. The 2021 reform required distributors to review the description in advance from the investor's point of view.
QDoes the distributor monitor management after I invest in a private fund?
A distributor that has sold a general private fund to general investors must check whether the asset manager's management is consistent with the key product description. If it is not, the distributor must demand withdrawal, change or correction from the asset manager, and if the asset manager does not comply, in principle within 3 business days, the distributor must report this to the Financial Services Commission and notify investors. The asset manager may file an objection to this demand with the Financial Services Commission.
QDoes the trust company (trustee) of a private fund also monitor management?
Yes. For private funds sold to general investors, the trust company must monitor whether the asset manager's management instructions comply with laws and regulations, the collective investment rules and the key product description. It must also carry out an asset reconciliation every quarter to check that the fund assets it holds and administers match the records of the asset manager (or fund administrator).
QDo private fund investors receive asset management reports?
Since the 2021 reform, the obligation to deliver asset management reports applies to general private funds offered to general investors (reports need not be delivered to professional investors). The financial authorities added items such as the fund's investment strategy, liquidity risk, and management risks and how they are managed, so that investors can accurately understand the risks of the fund's management. These strengthened safeguards may not apply to private funds made up solely of professional investors.
QAre private funds externally audited?
With the 2021 reform, general private funds offered to general investors above a certain size became subject to external audits. The criteria announced by the Financial Services Commission when the law was amended were assets exceeding KRW 50 billion, or assets of KRW 30 billion to 50 billion where additional collective investment securities were issued within 6 months. The requirement may not apply in cases prescribed by law, such as when all investors consent, so check the latest laws and regulations for the specific criteria.
QWhat happens if redemption of a private fund is postponed?
If a general private fund offered to general investors postpones redemption, it must hold a general meeting of investors within 3 months from the date of postponement to resolve matters concerning redemption. This safeguard was introduced by the 2021 reform. The provisions on general meetings of investors do not apply to private funds offered only to professional investors.
QCan I redeem a private fund at any time?
It depends on the fund. Unlike public funds, private funds have no obligation to list even if redemption is prohibited, so a fund that invests in illiquid assets may not allow redemption at all or may allow it only at fixed intervals such as quarterly or semiannually, and you may have to pay a high redemption fee if you redeem within a certain period. Before investing, be sure to check whether and on what terms redemption is possible, and consider whether this fits your own cash flow plans.
Source: Financial Supervisory Service FINE Financial Tips: Precautions When Investing in Private Funds
QCan a private fund holding many illiquid assets be set up as an open-end fund?
Under the 2021 reform, private funds with a high proportion of non-marketable assets for which no market price is available can no longer be set up as open-end funds that allow redemption at any time. Under the subordinate regulations, a fund must be set up as closed-end if assets without an exchange market price, excluding those readily convertible to cash, exceed 50%. This safeguard is meant to prevent redemption crises caused by mismatches between the fund's maturity and the maturities of its assets.
QCan I ask for a closed-end private fund to be settled before maturity?
In principle, this is difficult. In a Financial Supervisory Service dispute mediation case, where the investment proposal stated a maturity of 15 years from the establishment date and the investor had filled in by hand and signed the risk disclosure and checklist, a request for settlement was not accepted merely on the claim that the investor had been told of a shorter term. Because closed-end funds cannot be redeemed before maturity, check the maturity and the conditions for changing it carefully in the explanatory materials and the collective investment rules.
QCan I transfer my private fund interest to someone else?
Investors in a general private fund may not transfer their collective investment securities to anyone who is not a qualified investor. This is because private funds are products designed so that only investors specified by law can invest. Transfers of interests in institutional-only private funds are also subject to separate restrictions, such as the consent of the partners.
QHow are private funds managed, and are there investment restrictions?
Most public fund rules, such as diversification requirements, do not apply to private funds, so they enjoy relatively broad freedom in management. However, the combined total of derivatives risk exposure, debt guarantees, borrowing and the like may not exceed 400% of net assets, and lending directly to individuals, or arrangements with money lenders and others designed to get around this ban, are prohibited. There are also rules such as a requirement to dispose of another company's shares within 15 years once the fund holds 10% or more of them for management participation purposes.
QWhy does leverage matter in a private fund?
Private funds can invest on a scale larger than their net assets by investing in derivatives, borrowing money, providing debt guarantees and so on; this is called leverage. Because leverage magnifies losses as well as gains, the Enforcement Decree sets a higher minimum investment for individuals and other general investors, KRW 500 million instead of KRW 300 million, for funds whose total leverage exceeds 200% of net assets. Check the fund's level of leverage before investing.
QCan private funds charge performance fees?
Yes. The FSCMA prohibits performance fees linked to investment results in principle but permits them for private funds, and private fund fee structures are not standardized. With a performance fee, the fee grows as returns grow, so your actual return may fall short of expectations. Check the fee structure in advance, including the hurdle rate and the performance fee rate.
Source: Financial Supervisory Service FINE Financial Tips: Precautions When Investing in Private Funds
QWhat are the risks of investing in private funds?
Most public-fund-level rules, such as diversification and disclosure requirements, do not apply to private funds, so they may invest heavily in particular assets, and leverage such as borrowing can lead to larger losses than expected. If a fund invests in illiquid assets, redemption may be restricted or take a long time, and performance fees can reduce your actual return. Above all, remember that it is a performance-based product with no principal guarantee.
Source: Financial Supervisory Service FINE Financial Tips: Precautions When Investing in Private Funds
QWhat should I check before investing in a private fund?
The Financial Supervisory Service advises checking, before investing in a private fund, whether the asset manager and distributor are regulated financial companies; the investor requirements, such as the minimum investment amount; the investment strategy and main investment targets; the investment managers' experience and past performance; whether and on what terms redemption is restricted; and the fee structure, including performance fees. Also review the maturity and risk factors carefully in the key product description and the collective investment rules. Since funds are not principal-guaranteed products, be aware that a pitch for a 'principal-guaranteed, high-return private fund' is very likely to be illegal fundraising.
Source: Financial Supervisory Service FINE Financial Tips: Precautions When Investing in Private Funds
QWhat requirements must be met to manage a general private fund?
To manage a general private fund, a firm must register a general private collective investment business with the Financial Services Commission; operating without registration is prohibited. Under the Enforcement Decree, the firm must be a stock company or similar entity with equity capital of KRW 1 billion or more, at least 3 full-time investment managers, physical facilities such as IT systems, and a system to prevent conflicts of interest, among other things. Even after registration, it must continue to meet registration requirements such as maintaining equity capital above a certain level.
QIs a new private fund reported to the financial authorities?
Yes. A general private fund must be reported to the Financial Services Commission within 2 weeks from the date it is established, and if any reported matter changes, a change report must be filed within 2 weeks. Some funds, such as management-participation funds in which affiliates of large business groups invest above a certain proportion, must be reported without delay after establishment. If a fund is not reported or is reported falsely, the Financial Services Commission may order the fund to be terminated or dissolved.
QCan I invest in a private fund with stocks or real estate instead of cash?
A general private fund may accept contributions in assets other than cash, such as securities, real estate or physical assets, in accordance with methods prescribed by law, where an objective valuation is possible and there is no risk of harming other investors' interests. The Enforcement Decree requires the consent of all other investors and payment at the price set by the valuation committee.
QCan a private fund allocate gains and losses differently among investors?
Yes. A general private fund may set out in its collective investment rules how gains and losses are distributed to investors, including their order of priority. For example, structures in which some investors absorb losses first or receive profits ahead of others are possible, so be sure to check in the rules and the description where your interest ranks.
QWhat are blind funds and project funds?
A blind fund raises money first without having decided on its investment targets, and then finds targets and invests in them. A project fund decides on its investment target in advance and then raises money to invest in it. Which approach a fund takes affects how much information you can check before investing.
Source: Financial Services Commission Financial Glossary: Blind Fund
QIs a hedge fund the same as a private fund?
'Hedge fund' commonly refers to a fund that raises money by private placement from a small number of high-net-worth investors and invests actively not only in stocks and bonds but also in high-risk, high-return assets such as derivatives, sometimes increasing the scale of its investments through borrowing. In other words, a hedge fund can be understood as one form of fund operated on a private placement basis. In Korea, 'professional-investment private funds' used to be called hedge funds, and they became general private funds after the 2021 reform.
QWhat is the PBS that securities firms provide to private funds?
PBS (Prime Brokerage Service) is a business in which a securities firm links and provides comprehensively a range of services needed to manage private funds, such as securities lending and borrowing, credit extension, and custody and administration of fund assets. Since the 2021 reform, PBS securities firms that provide leverage, such as credit, to private funds must assess and manage the level of that risk.
Source: Financial Services Commission Financial Glossary: PBS (Prime Brokerage Service)
QWhat is a corporate financial stability private fund?
A corporate financial stability private fund invests in companies that need to improve their financial structure, such as companies showing signs of insolvency, companies that have filed for rehabilitation and companies that have signed financial structure improvement agreements, to help normalize their management, and distributes the returns to investors. It can invest by acquiring such companies' shares, bonds, non-performing loans (NPLs) or real estate, or by purchasing loan receivables. Introduced on a temporary basis in 2010, it became a permanent scheme from December 2016.
QWhat is a start-up and venture private fund?
A start-up and venture private fund is a private fund whose purpose is to invest in founders, venture companies, technology-innovative small and medium-sized enterprises and the like, and to distribute the returns to investors; the scheme was created on January 1, 2017. The FSCMA has separate special provisions for such special-purpose private funds.
QAre private funds for general investors regulated differently from those for professional investors?
Yes. Under the 2021 reform, 'general private funds offered to general investors' are subject to strengthened safeguards, such as delivery of the key product description and asset management reports, external audits, and oversight of management by distributors and trustees. By contrast, private funds made up solely of professional investors, who are capable of managing risk, remain subject to the previous level of regulation. At the time of the reform, existing funds whose investors were all professional investors were required to state this in their rules and descriptions and report it to the Financial Supervisory Service.
QHow do I get information about a private fund?
Most of the public disclosure obligations that apply to public funds do not apply to private funds, so publicly available information is limited. Investors check fund information through the key product description, the collective investment rules and (for funds offered to general investors) asset management reports. Matters that must be disclosed or publicly announced under the FSCMA or the Commercial Act are deemed to have been disclosed if all investors are notified by the method set out in the rules.
QWho can sell private funds?
Private funds are also sold by distributors qualified to sell funds, such as banks and securities firms, and a general private fund manager may also sell the general private funds it manages directly. Even when an asset manager sells directly, sales-related rules such as the prohibition on unsound business practices apply accordingly. In either case, the distributor must verify whether the investor is a qualified investor.
QWhat action is taken if an asset manager manages a private fund improperly?
The Financial Services Commission may order a general private fund to be terminated or dissolved where, for example, the fund does not meet the requirements for establishment, has not been reported, or has been reported falsely. It may also take measures such as business suspension, orders to transfer contracts, orders to correct or stop violations, and institutional warnings. The 2021 reform also created a route for swiftly removing unsound asset managers that fall short of registration requirements such as equity capital.
05
Fund Basics
This section summarizes the basic concepts worth knowing before you invest in a fund, including how funds are structured and classified, NAV per unit and redemption, fees and charges, and asset management reports. Be sure to check the terms of any individual fund in that fund's prospectus.
QWhat is a fund?
A fund is a financial product in which a professional asset manager invests money pooled from multiple investors in stocks, bonds, real estate and other assets, and returns the results to investors in proportion to their stakes. Under the Financial Investment Services and Capital Markets Act (FSCMA), it is called a 'collective investment vehicle'. The basic principle is that investors do not direct the management of the money item by item, and those who invest in the same fund have equal rights and share the management results as they are.
Source: Financial Supervisory Service Financial Glossary (FINE): Collective Investment Vehicle (Fund)
QWhat exactly does 'collective investment' mean under the law?
The FSCMA defines collective investment as pooling money or other assets from two or more investors, managing them in assets with property value without day-to-day management instructions from the investors, and distributing the results to the investors so that they belong to them. Carrying on such collective investment as a business is the collective investment business, and asset management companies are the typical example. However, certain cases specified by law are excluded from collective investment.
QIs my principal guaranteed if I invest in a fund?
No. A fund is a performance-based product whose management results pass directly to investors, so you can lose principal. The FSCMA prohibits asset managers and distributors from compensating investors for losses or guaranteeing profits, and funds are also excluded from deposit insurance protection.
Source: Financial Supervisory Service Financial Glossary (FINE): Principle of Performance-Based Distribution
QWhat are the advantages and disadvantages of investing in funds?
Commonly cited advantages are that professionals manage the money for you, saving time and effort, and that even a small amount lets you spread your investment across many assets. On the downside, various fees and charges can make transaction costs higher than investing directly, and the investment risk is still borne by the investor even though someone else manages the money.
QHow is a fund different from a discretionary investment account or a trust?
A fund pools money from multiple investors into a single collective investment vehicle, manages it, and shares out the results. Discretionary investment management differs from a fund in that the investor and the firm sign an individual contract and ownership of the contracted assets remains with the investor. A trust is also distinguished from a fund in that it presupposes an individual fiduciary relationship between the settlor and the trustee.
Source: Financial Supervisory Service Financial Glossary (FINE): Collective Investment Vehicle (Fund)
QWhat is the difference between an investment trust and an investment company?
An investment trust is a fund created when an asset management company (the settlor) enters into a trust agreement with a trust company (the trustee); the asset manager gives management instructions, and the trust company holds and administers the assets. An investment company is a fund in the form of a stock company under the Commercial Act; investors become shareholders, and the company is a paper company with no full-time officers or employees that entrusts management, custody and administration to outside firms.
Source: Financial Supervisory Service Financial Glossary (FINE): Investment Trusts and Investment Companies
QWhat legal forms can a fund take?
The FSCMA classifies collective investment vehicles into investment trusts, investment companies, investment limited companies, investment limited partnership companies, investment limited liability companies, investment limited partnerships and investment silent partnerships. Depending on the form, the investor's status differs (beneficiary, shareholder, member, partner and so on), and the document governing the fund's organization and operation also differs, such as a trust agreement, articles of incorporation or partnership agreement.
QHow are funds classified by what they invest in?
The FSCMA divides collective investment vehicles by investment target into securities, real estate, special assets, mixed assets and short-term financial (MMF) vehicles, and a 2025 amendment to the Act added the business development collective investment vehicle (BDC), which invests mainly in venture and innovative companies. Securities, real estate and special asset funds must invest more than the proportion of fund assets set by law (e.g., 50% for securities funds) in the relevant assets. Mixed asset funds can be managed without such ratio limits.
QHow are equity, bond and hybrid funds distinguished?
Securities funds are classified by the proportion of the assets they mainly invest in. Generally, a fund that invests 60% or more of its total assets in stocks is called an equity fund, and one that invests 60% or more in bonds without holding any stocks is called a bond fund. Hybrid funds are sometimes further divided into equity-oriented hybrid and bond-oriented hybrid funds, using a maximum stock allocation of 50% as the dividing line.
Source: Financial Supervisory Service Financial Glossary (FINE): Securities Fund
QWhat are special asset funds and mixed asset funds?
A special asset fund invests more than 50% of its assets in assets other than securities and real estate; because its range of investment targets is broad, it is easy to create new products. A mixed asset fund is not subject to minimum investment ratios for securities, real estate or special assets. Because the assets of both types can be difficult to value fairly, they must in principle be set up as closed-end funds, although they may be open-end if they invest only in marketable assets.
Source: Financial Supervisory Service Financial Glossary (FINE): Special Asset Fund
QWhat kind of product is an MMF (money market fund)?
An MMF is a fund that invests in short-maturity, low-credit-risk money market instruments such as government bonds and Monetary Stabilization Bonds, high-grade commercial paper (CP) and certificates of deposit (CDs). Because same-day deposits and same-day redemptions are possible, it is widely used to park spare cash temporarily. However, an MMF is still a fund, so principal is not guaranteed.
Source: Bank of Korea Economic Glossary: Money Market Fund (MMF)
QWhat is a business development collective investment vehicle (BDC)?
A BDC is a listed public fund that invests 60% or more of its total assets in 'primary investment target companies', such as unlisted venture and innovative companies and companies listed on KONEX or KOSDAQ. Following amendments to the related subordinate regulations, the scheme took effect on March 17, 2026, and BDC securities are listed and traded on the KOSDAQ market. Separate investment rules apply, such as a requirement to invest at least 10% of total assets in safe assets like government and public bonds or cash.
QWhich companies are involved in a fund?
The key players are the asset management company (collective investment business entity), which creates the fund and gives management instructions; the distributor (a securities firm, bank, insurer, etc.), which sells the fund to investors; and the trust company, which carries out management instructions and holds and administers the money and assets. Others include the general administration company, which handles administrative work such as calculating the NAV per unit, and fund rating companies, which evaluate funds.
QWhat role does a fund distributor play?
A distributor enters into a sales agreement with the asset manager, sells the fund to investors, and receives and processes investors' redemption requests. Only firms authorized by the Financial Services Commission may sell funds, and employees qualified to sell them must do so in accordance with investment solicitation guidelines. Today, funds are mainly sold by banks, securities firms and insurance companies.
QWhat does a trust company (trustee) do?
A trust company holds and administers fund assets separately from its own proprietary assets and from other assets. It also checks whether the asset manager's management instructions violate laws and regulations, the collective investment rules or the prospectus, and if there is a violation, it must demand that the instruction be withdrawn, changed or corrected. If the asset manager does not comply within 3 business days, the trust company must report this to the Financial Services Commission and disclose it publicly.
QWhat happens to my fund assets if the asset management company goes out of business?
Fund assets are held and administered not by the asset manager but by a trust company, and the law requires them to be kept separate from the trust company's own proprietary assets as well. Securities and similar assets must be deposited with the Korea Securities Depository fund by fund, and the trust company may not be an affiliate of the asset manager that manages the fund. This segregated custody structure is meant to keep the asset manager's business problems from directly affecting fund assets, but it does not protect against investment losses.
QIf the distributor can no longer do business, where do I request redemption?
In principle, you request redemption from the distributor that sold you the fund. However, if the distributor cannot meet redemption requests because of dissolution, revocation of its authorization, business suspension or a similar reason, you may request redemption directly from the fund's asset manager. If the asset manager also cannot respond for the same reasons, you may request it from the trust company that holds and administers the fund assets.
QWhat is the NAV per unit?
The NAV per unit (base price) is the price of one unit of a fund that applies when you buy or sell (redeem) the fund. It is calculated by valuing the fund's assets as of the day before the announcement date at fair value or a similar basis, subtracting liabilities to arrive at total net assets, and dividing by the total number of units of beneficiary certificates outstanding. Asset managers and others must announce and post the NAV per unit daily; where daily announcement is difficult, such as for funds investing in foreign-currency assets, a separate interval of up to 15 days may be set.
Source: Financial Supervisory Service Financial Glossary (FINE): NAV per Unit (Base Price)
QWhat does NAV (net asset value) mean?
NAV (Net Asset Value) is the value of the assets held by a fund or similar vehicle minus its liabilities. Dividing it by the number of units held by investors gives the net asset value per unit (or per share), and funds are usually bought and redeemed on the basis of this value. The NAV per unit of Korean funds is the same concept, since it is total net assets divided by the total number of units.
Source: Net asset value
QHow are fund assets valued?
Asset managers must in principle value fund assets at market price and, where no reliable market price exists, at fair value as prescribed by law. To this end, they set up a valuation committee and establish valuation standards confirmed by the trust company, and the trust company checks whether the valuation has been carried out fairly. Please also note that assets without a market price can be valued differently depending on the valuation method.
QWhat do fund 'establishment' and 'termination' mean?
For an investment trust, establishment means the asset manager entering into a trust agreement with a trust company and paying in the trust principal to create the fund; issuing more beneficiary certificates as investment money comes in is called additional establishment. Termination means ending the investment trust, which happens when, for example, the trust agreement period expires or a beneficiaries' meeting resolves to terminate the fund. Part of a fund may also be terminated, for instance to meet investors' redemption requests.
QWhat is fund redemption?
Redemption means a fund investor getting back all or part of their investment stake at the fund's net asset value. When an investor submits a redemption request to the distributor, the distributor passes it on to the asset manager; in principle, the proceeds are paid out of the cash held by the fund, and the units concerned are then cancelled. If all investors agree, payment may be made in assets held by the fund instead of cash.
Source: Financial Supervisory Service Financial Glossary (FINE): Fund Redemption
QWhen will I receive my money after requesting redemption?
In principle, the FSCMA requires redemption proceeds to be paid on the redemption date set in the collective investment rules, within 15 days from the day the investor requests redemption. Because each fund sets its specific payment date in its rules, check the prospectus of your fund or ask your distributor. Exceptions prescribed by law may apply depending on factors such as the liquidity of the underlying assets.
QWhich day's price applies when I redeem?
In principle, the redemption price is the NAV per unit calculated after the day the redemption is requested. If a past price already known on the day of the request were applied, investors could trade on price movements, which would be unfair to other investors. For this reason, you cannot know the exact redemption amount in advance at the time you request redemption.
Source: Financial Supervisory Service Financial Glossary (FINE): NAV per Unit (Base Price)
QWhy do I have to pay a redemption fee?
A redemption fee is charged when you redeem within the charging period set in the collective investment rules, and it is usually levied as a percentage of the profit. It is borne by the investor who requests redemption, and the fees collected go into the fund's assets, not to the asset manager or distributor. The charging period and fee rate differ from fund to fund, so check them before investing.
Source: Financial Supervisory Service Financial Glossary (FINE): Fund Redemption
QCan a fund redemption be postponed?
Yes. If redemption cannot be made on the scheduled date for reasons prescribed by law, such as the fund being unable to dispose of its assets, the asset manager may postpone redemption. In that case, it must hold a general meeting of investors within 6 weeks from the date of postponement to resolve matters concerning redemption, and notify investors of the outcome. If some of the assets can be disposed of, a partial redemption covering only that portion may be made first.
QHow do a fund's 'fees' and 'charges' differ?
Fees are costs paid out of the fund on an ongoing basis to the asset manager, distributor, trust company, administration company and others, usually calculated as a percentage of the fund's net assets. Charges are costs the investor pays directly, such as the sales charge paid when buying a fund and the redemption fee paid when redeeming early.
Source: Financial Supervisory Service Financial Glossary (FINE): Fund Fees and Charges
QWhat types of fund fees are there?
The main ones are the management fee, paid for managing the portfolio; the distribution fee, paid for selling and servicing the fund; and the trustee fee, paid for keeping and administering the assets safely. An administration fee and others may be added. This cost information is set out in the fund's prospectus, so you can check it at any time before investing.
QWhat are front-end and back-end sales charges?
A sales charge is paid by the investor in return for the sale of a fund; one deducted when you subscribe is a front-end sales charge, and one deducted when you redeem is a back-end sales charge. It may be charged at different rates depending on the amount invested, the distributor, the investment period and so on. Laws and regulations set separate caps on sales charges and distribution fees (2% for sales charges and 1% for distribution fees, according to the FSS glossary), and the detailed standards may be amended.
Source: Financial Supervisory Service Financial Glossary (FINE): Fund Fees and Charges
QWhat do fund classes (Class A, Class C, etc.) mean?
Even the same fund is divided into several classes depending on how sales charges and distribution fees are collected. According to the Financial Supervisory Service, Class A deducts a sales charge up front at subscription but has a lower distribution fee rate, which favors long-term investment, while Class C has no sales charge but a higher distribution fee rate, which favors short-term investment. The FSS notes that the cumulative costs of the two classes usually become similar after about 2 years and advises considering the class that suits your expected investment period.
QWhat is a multi-class fund?
A multi-class fund issues several classes of units within a single fund whose NAVs per unit differ because of differences in distribution fees and sales charges. The classes are divided according to factors that affect distribution costs and are reflected in the collective investment rules. Matters that concern only a particular class can be decided at a meeting of that class's investors alone.
Source: Financial Supervisory Service Financial Glossary (FINE): Multi-Class Fund
QWhat is a 'listed class' of a public fund?
A listed class is a new exchange-listed class of beneficiary certificates created within an existing public fund; it is listed on the KOSPI market of the Korea Exchange and can be bought and sold in real time like stocks or ETFs. Introduced to reduce costs such as sales charges and distribution fees and to make trading easier, listed classes began trading on October 27, 2025, starting with certain funds. There are points to note, such as the fact that a listed class acquired through conversion cannot be converted back into another class, so check the Korea Financial Investment Association's guidance.
Source: Korea Financial Investment Association (KOFIA): Guide to Converting to Public Fund Listed Classes
QWhat is the total expense ratio (TER)?
The TER is the ratio of the fees and expenses paid continuously and repeatedly out of a fund to the fund's net assets. For example, a TER of 3% can be understood to mean that 3% of net assets is paid out as costs each year; financial costs such as interest are excluded. You can compare TERs by asset manager and distributor on the Korea Financial Investment Association website.
Source: Financial Supervisory Service Financial Glossary (FINE): Total Expense Ratio
QAre there funds that charge performance fees?
A performance fee is a fee the asset manager receives, calculated in a predetermined way linked to the fund's performance. The FSCMA prohibits performance fees in principle but allows them for private funds, or for public funds in cases prescribed by law, such as where they pose no problem for investor protection. Funds that charge performance fees must state the calculation method and related details in the prospectus and the collective investment rules, so check these before investing.
QWhat is the difference between open-end and closed-end funds?
An open-end fund allows you to request redemption after investing, while a closed-end fund has a fixed term during which you cannot request redemption. Because closed-end funds face no redemption pressure, they can also invest in assets that are hard to value fairly every day, such as real estate. Before investing, be sure to check whether early redemption is possible and when the fund matures.
Source: Financial Supervisory Service Financial Glossary (FINE): Open-End and Closed-End Funds
QHow do I cash out of a public fund that cannot be redeemed?
A public non-redeemable (closed-end) fund must be listed on the securities market within 90 days from the date its collective investment securities are first issued, unless it has set out a separate way to ensure liquidity. Investors can recover their money by selling the listed fund units on the exchange. However, if trading is thin, it may be hard to sell at the price you want.
QWhat is a master-feeder (parent-child) fund structure?
It is a structure in which money from multiple feeder (child) funds created by the same asset manager is pooled into one master (parent) fund and managed together, with the aim of lowering transaction costs through economies of scale. Only the feeder funds may invest in the master fund, and the feeder funds may not invest in any fund other than that master fund. The feeder funds' own management is limited to holding enough liquidity to meet redemptions.
Source: Financial Supervisory Service Financial Glossary (FINE): Master-Feeder Fund
QWhat is a fund of funds?
A fund of funds invests a substantial portion of its assets (generally 40% or more) in collective investment securities issued by other funds. To prevent excessive concentration in a single fund or in the funds of a single asset manager, the FSCMA sets investment limits, for example allowing up to 20% in a single fund and up to 50% in funds of the same asset manager. The managers of the underlying funds may differ from the manager of the fund of funds.
Source: Financial Supervisory Service Financial Glossary (FINE): Fund of Funds
QWhat is a switching (umbrella) fund?
A switching fund groups several funds under common collective investment rules so that investors can switch to another fund within the group. Investors who request a switch are not charged a redemption fee. However, switching between funds with different legal forms, such as an investment trust and an investment company, is not allowed.
Source: Financial Supervisory Service Financial Glossary (FINE): Switching Fund
QWhat is an index fund?
An index fund builds its portfolio to track the movement of a stock index and aims for the market's average return. Compared with ordinary funds, it tends to have lower turnover and transaction costs, and return differences between index funds are small. It resembles an ETF in that it tracks an index, but differs in that index funds are usually not listed on an exchange.
Source: Financial Supervisory Service Financial Glossary (FINE): Index Fund
QHow is an ETF (exchange-traded fund) different from an ordinary fund?
An ETF is a fund managed to track changes in a specific index or asset price, and it is listed on an exchange and traded like a stock. Because its holdings can be checked daily through disclosure of its portfolio deposit file (PDF), its management tends to be more transparent than that of ordinary funds, and its fees tend to be lower. Besides passive ETFs that simply track an index, there are also active ETFs that aim to outperform the index.
QWhat are leveraged ETFs and inverse ETFs?
A leveraged ETF is designed so that its return moves at a set multiple of changes in the underlying index, while an inverse ETF's return is set to move in the opposite direction to the underlying index. Because their prices swing more than those of ordinary ETFs or move in the opposite direction, you should trade them only after fully understanding their structure and risks.
Source: Bank of Korea Economic Glossary: Exchange-Traded Fund (ETF)
QWhat is an asset management report and how often will I receive it?
An asset management report explains the fund's management results; the asset manager must provide it to investors through the distributor at least once every 3 months, after it has been confirmed by the trust company. It covers the fund's assets, liabilities and NAV per unit, how the fund has been managed and its gains and losses, the valuation and weighting of each asset, portfolio turnover and more. The asset manager bears the cost of preparing and providing it, and you can receive it in person or by post, email and the like.
Source: Financial Supervisory Service Financial Glossary (FINE): Asset Management Report
QHow does the asset custody and administration report differ from the management report?
The asset custody and administration report is prepared and delivered to investors not by the asset manager but by the trust company that holds the fund assets. It covers major changes to the collective investment rules, changes in investment management personnel, resolutions of the general meeting of investors and any correction demands made to the asset manager, and it must be delivered within 2 months from the date of an event prescribed by law, such as the end of an accounting period. It differs from the management report in that the information is presented from the perspective of the trust company that oversees management.
QWhat is a fund prospectus and why is it important?
A prospectus is a statutory document that must be delivered in advance when soliciting investors to buy securities for which a securities registration statement has become effective, and its contents must match the registration statement. It contains the information needed to make an investment decision, such as the fund's investment objective and strategy, risks, fees and charges, and redemption terms. Because strict liability for damages and penalties apply if its contents are untrue, read it carefully before investing.
Source: Financial Supervisory Service Financial Glossary (FINE): Prospectus
QWhat do the collective investment rules (trust agreement) contain?
The trust agreement, which serves as the collective investment rules of an investment trust, covers matters such as the asset manager and trust company, the trust principal and total number of units of beneficiary certificates, the management and administration of assets, profit distribution and redemption, fees and charges, beneficiaries' meetings, and disclosures and reports. Changing matters that are important to investors, such as raising fees, replacing the trust company or changing the trust agreement period, requires a prior resolution of a beneficiaries' meeting. Changes are disclosed publicly, and changes made through a meeting are notified to the beneficiaries.
QWhy look at a fund's benchmark?
A benchmark is the reference used for comparison when evaluating a fund's performance objectively. Typically, equity funds use the KOSPI or KOSPI 200, MMFs use the call rate or CD rate, and bond funds use Korea Treasury Bond or Monetary Stabilization Bond yields as their benchmarks. The benchmark is stated in the prospectus and the asset management report.
Source: Financial Supervisory Service Financial Glossary (FINE): Fund Benchmark
QWhere can I check a fund's returns or NAV per unit?
The Korea Financial Investment Association's electronic disclosure service (dis.kofia.or.kr) offers fund disclosures, fund return disclosures, fund comparison search and NAV per unit lookup. Fund statistics such as assets under management, fees and fund flows are available on the Association's fund statistics site (freesis.kofia.or.kr). You can also check how a fund you hold is being managed in the asset management report provided by your distributor.
QWill investors be notified if something important changes in a fund?
Yes. The asset managers of investment trusts and similar funds must make an ad hoc disclosure without delay when events occur such as a change in investment management personnel, a decision to postpone or resume redemptions, the emergence of non-performing assets or a resolution of the general meeting of investors. Ad hoc disclosures are made through channels such as the websites of the asset manager, the distributor and the Korea Financial Investment Association. It is helpful to check the disclosures for your fund regularly.
QWhat is a fund rating company?
A fund rating company evaluates funds and provides that information to investors, distributors and others; it must meet certain requirements and register with the Financial Services Commission. It is subject to independence requirements, such as not being an affiliate of a distributor or asset manager, and must disclose its detailed rating criteria. Ratings are only reference material and do not guarantee future returns.
QHow is a fund's risk grade shown?
Under the Financial Consumer Protection Act, financial companies that sell funds must explain the risk grade of investment products, and the example in the Korea Financial Investment Association's Standard Investment Solicitation Rules divides risk into 6 grades (very high risk, high risk, somewhat high risk, moderate risk, low risk and very low risk). Sales staff must explain what the risk grade means, the related precautions, and why the product was assigned that grade. Also check the key statements in the product description, such as the possibility of principal loss and whether deposit insurance applies.
Source: Korea Financial Investment Association (KOFIA) Standard Investment Solicitation Rules
QWhat are offshore funds and onshore funds?
An onshore fund is established in Korea under Korean law, while an offshore fund is established abroad under foreign law. A Korean fund that invests mainly in overseas assets is called an overseas investment fund. To sell an offshore fund to Korean residents, it must meet certain requirements and be registered with the Financial Services Commission before it is sold.
Source: Financial Supervisory Service Financial Glossary (FINE): Offshore and Onshore Funds
QHow much can a public fund invest in a single security?
The FSCMA restricts how fund assets are managed in order to ensure diversification. For example, each fund may not invest more than the ratio set by the Enforcement Decree, within a limit of 10% of its total assets, in securities of the same issue, and a single fund may not invest in more than 10% of the total equity securities issued by the same company. However, there are exceptions prescribed by law, such as where there is no problem for investor protection.
QWhat is a TDF (target date fund)?
A TDF continuously adjusts its allocation between stocks, bonds and other assets according to the time remaining until the expected retirement date. For example, it pursues both returns and stability by reducing the share of stocks and increasing the share of bonds as retirement approaches. The fact that asset allocation happens automatically does not mean principal is guaranteed.
Source: Financial Services Commission Financial Glossary: TDF (Target Date Fund)
QWhat kind of product is a target-conversion fund?
A target-conversion fund raises money for a set period and invests it in risky assets such as stocks; once a predetermined target return is reached, it switches to safe assets such as bonds and is managed that way until maturity. The target return is not a fixed, promised return, so reaching the target may be delayed or may not happen at all, and the actual return after conversion may fall short of the target. Because maturity may be shortened once the target is reached, check the structure and risks in the prospectus.
QHow are a fund's profits distributed?
The asset manager must distribute profits from managing the fund to investors in cash or in newly issued collective investment securities. However, funds specified by law may retain profits within the fund in accordance with their collective investment rules. Distribution methods differ from fund to fund, so check the prospectus and the rules.
06
Investing in Stocks
This section summarizes the basic concepts of stock investing, including shares and shareholder rights, stock indices and trading rules, short selling, dividends and capital increases, and basic financial ratios. It does not recommend any particular stock or trading timing; for detailed rules, please check the latest guidance from the exchange and the financial authorities.
QWhat is a stock?
A share of stock is a unit that makes up the capital of a stock company, and it also means the equity interest (status as a shareholder) that a shareholder obtains by contributing capital to the company. Shareholders have rights in proportion to their stake, such as voting, receiving dividends and receiving distributions of residual assets. When shares are transferred, this shareholder status passes along with them.
Source: Stock
QWhat rights do shareholders have?
Shareholders have rights such as voting at general meetings of shareholders, receiving dividends from the company's profits, and being allotted new shares in proportion to their holdings when the company issues new shares. In principle, each share carries one vote, and treasury shares held by the company have no voting rights. Shareholders holding at least a certain percentage of shares also have minority shareholder rights, such as the right to request that a general meeting be convened, to inspect the accounting books and to demand the dismissal of directors.
Source: Stock
QHow do common shares and preferred shares differ?
Common shares are ordinary voting shares, while preferred shares usually carry no voting rights but rank ahead of common shares in matters such as dividends. In the Korean stock market, preferred shares are identified by the Korean character for 'preferred' added after the stock name, and an added 'B' denotes new-type preferred shares issued with a maturity since 1996. Preferred shares have a small float, so their prices can swing widely, and they may be delisted if trading volume or the number of shareholders is too low.
Source: Preferred stock
QHow many non-voting shares can a company issue?
Under the Commercial Act, a company may issue, as provided in its articles of incorporation, classes of shares that differ in matters such as profit dividends, distribution of residual assets, exercise of voting rights, and redemption or conversion. Among these, classes of shares with no or restricted voting rights may not exceed one-quarter of the total number of issued shares. The articles of incorporation must specify the matters on which voting rights cannot be exercised and the conditions under which voting rights are restored.
QWhat are convertible preferred shares and redeemable shares?
Convertible shares are a class of shares that can be converted into another class (e.g., from preferred to common) under conditions set in the articles of incorporation, and convertible preferred shares are preferred shares carrying such a conversion right. Redeemable shares are a class of shares designated to be retired (redeemed) out of the company's profits, and the articles of incorporation may provide for the company to redeem them or for shareholders to request redemption. When investing, check the conditions and periods for conversion and redemption in the articles of incorporation and disclosures.
QHow is market capitalization calculated?
Market capitalization is the share price multiplied by the number of common shares issued, and it represents the total value of the company's equity as valued by the market. It is often used to compare the size of companies, and the market capitalization of all listed companies is sometimes added up to compare the size of stock markets. However, because it does not reflect debt, it may differ from the value of the company as a whole or from its book equity.
Source: Market capitalization
QHow are stock indices constructed?
A stock index is an indicator that combines the price movements of many stocks to show the price level of the stock market as a whole. There are price-weighted indices, which simply average stock prices, and market-capitalization-weighted indices, which weight prices by the number of listed shares and compare market capitalization at a base date with the present. Most major indices worldwide, such as the KOSPI, KOSDAQ and S&P500, are calculated using market-capitalization weighting.
QWhat is the KOSPI?
The KOSPI is the benchmark stock index that expresses the market capitalization of companies listed on the Korea Exchange's KOSPI market relative to a base date. It is calculated with the market capitalization on January 4, 1980 set at 100; originally called the Composite Stock Price Index, it has been called the KOSPI since November 2005. When the number of listed shares changes through paid-in or bonus capital increases, mergers and the like, the base market capitalization is adjusted to keep the index continuous.
Source: KOSPI
QWhat kind of market is KOSDAQ?
KOSDAQ is a stock market opened in July 1996, modeled on the US NASDAQ, to help small and medium-sized enterprises and venture companies raise business funds smoothly through the stock market. It operates under rules separate from those of the KOSPI market, and the companies listed on it are mainly high-growth companies.
Source: KOSDAQ
QWhat are the KOSPI 200 and the KOSDAQ 150?
The KOSPI 200 and the KOSDAQ 150 are indices made up of 200 and 150 stocks, respectively, selected from among KOSPI- and KOSDAQ-listed stocks with large market capitalization and high trading volume, based on market representativeness, liquidity and sector representativeness. They serve as underlying indices for a variety of financial products, such as index futures and options, ETFs and index funds.
Source: Financial Services Commission Financial Glossary: KOSPI 200 and KOSDAQ 150 Indices
QHow do the KOSPI market, KOSDAQ, KONEX and K-OTC differ?
The KOSPI market, the KOSDAQ market and the KONEX market are exchange markets opened and operated by the Korea Exchange, while the K-OTC market is an over-the-counter market. For a stock to be traded on an exchange market, it must go through a registration procedure called listing. Listing requirements and levels of regulation differ by market, so it is a good idea to check which market a stock you invest in trades on.
QHow is a stock trade executed?
An investor first opens a trading account with a securities firm and places an order, and the securities firm, as a member of the exchange, submits (quotes) that order to the exchange. The exchange collects all orders, matches trades according to its rules, and notifies investors of the results through the securities firms. For executed trades, cash and shares are settled on the third day counting the trade date (T+2).
Source: Korea Exchange
QWhen I buy shares, when is the money taken out and when do the shares arrive?
The Korean stock market settles securities and cash on the 2nd trading day after the trade date (T+2). For example, if there are no holidays, shares bought on Monday are settled on Wednesday, after which you can appear on the shareholder register as a shareholder. Many other countries, including the US, Japan, Hong Kong and Germany, also use T+2 settlement.
Source: Financial Services Commission Financial Glossary: T+2 Settlement System
QWhat are the regular trading hours of the stock market?
According to the Financial Supervisory Service, orders for determining the opening price are accepted from 8:30 to 9:00 a.m., and regular market trading begins at 9:00. Before the close, from 15:20 to 15:30, orders for determining the closing price are collected and executed all at once. Trading hours may change due to amendments to exchange rules or market conditions, so check notices from the exchange and your securities firm.
QWhat is a call auction (single-price auction)?
A single-price auction is a method in which orders received over a set period are collected and executed all at once at a single price; it is commonly called a 'simultaneous quote' session in Korea. It is an efficient way to quickly find a new equilibrium price when trading continuity is broken, such as before the market opens or before it closes, or when share prices are likely to change sharply. During the rest of regular market hours, continuous trading takes place, with orders executed as they come in.
Source: Financial Services Commission Financial Glossary: Single-Price Auction
QHow do market orders and limit orders differ?
A limit order specifies the price at which you want to buy or sell; it is executed only at that price or a better one, but it may not be executed at all. A market order does not specify a price and is executed immediately at the best price available at that moment; it is more likely to be executed, but when prices are moving fast it may be filled at a price quite different from the last price. Which one to choose depends on whether you prioritize certainty of execution or control over the price.
Source: Order (exchange)
QWhat is after-hours trading?
The after-hours market operates outside regular market hours; according to the Financial Supervisory Service glossary, it runs from 08:00 to 09:00 before the market opens and from 15:40 to 18:00 after it closes. During these hours, trading takes place in ways that differ from the regular market, such as after-hours block trading, in which trades are concluded on the stock, quantity and price agreed in advance between the seller and the buyer. Hours and methods may change under exchange rules.
Source: Financial Supervisory Service Financial Glossary (FINE): After-Hours Block Trading
QWhat are the upper and lower price limits (daily price limit)?
The daily price limit is the maximum amount by which an individual stock's price can rise or fall in a single day, a mechanism to reduce the shock that excessive price movements cause to the market. In the Korean stock market, the daily price limit was widened from 15% to 30% on June 15, 2015; a stock that rises by the full limit is said to hit the upper limit, and one that falls by the full limit hits the lower limit. The US and European stock markets have no such price limits.
Source: Daily price limit
QWhen are circuit breakers triggered?
Circuit breakers (trading halts) are triggered in stages when the KOSPI or KOSDAQ index falls 8%, 15% or 20% or more from the previous trading day and stays there for 1 minute. When stage 1 or 2 is triggered, all stock trading is halted for 20 minutes and then resumes with a 10-minute single-price auction; when stage 3 is triggered, stock trading ends for the day. The system is intended to give investors time to make calm judgments when share prices plunge.
Source: Circuit breaker (stock market)
QWhat is a sidecar?
A sidecar (temporary suspension of program trading orders) is a mechanism to reduce the impact of program trading on the cash market when futures prices change sharply. For example, in the KOSDAQ market, if the KOSDAQ150 futures price moves 6% or more from its base price and the KOSDAQ150 index simultaneously moves 3% or more from the previous trading day, and this persists for 1 minute, program trading orders received from that point on are suspended for 5 minutes.
QWhat is a volatility interruption (VI)?
A VI is a mechanism that gives investors a cooling-off period by allowing only single-price auction trading for 2 minutes when the price of an individual stock temporarily changes sharply due to order errors, supply-demand imbalances and the like. VIs are divided into dynamic VIs, which mitigate momentary sharp price changes, and static VIs, which mitigate cumulative, longer-term price movements. Being unable to trade immediately at the price you want while a VI is in effect is a market measure, not a failure of your securities firm's computer system.
QWhat happens when a stock is designated as short-term overheated?
The short-term overheating mitigation system is designed to prevent excessive momentum trading and unfair trading in stocks that continue to show abnormal surges or overheating. If a stock meets the designation criteria, such as its price rising 30% or more above the average closing price of the previous 40 trading days, regular market trading in that stock switches to single-price auctions every 30 minutes for 3 trading days.
QWhat is short selling?
Short selling means selling securities you do not own or have borrowed; it is a trade in which you sell when you expect the price to fall and later buy them back more cheaply to return them, profiting from the difference. It has the advantage of improving the efficiency of price formation and liquidity, but its drawbacks include the risk of settlement failure and the potential for abuse as a means of market manipulation. If the share price rises contrary to expectations, you incur a loss.
Source: Financial Supervisory Service Financial Glossary (FINE): Short Selling
QIs short selling allowed in Korea?
The FSCMA prohibits naked short selling, i.e., selling listed securities you do not own, and allows only covered short selling, settled with borrowed securities, when it follows the methods prescribed by law. Short sale orders must be marked separately from ordinary sell orders and may not be placed at or below the last price, and net short positions above a certain level must be reported and disclosed. The Financial Services Commission can restrict covered short selling to stabilize the market, so check announcements by the Financial Services Commission and the exchange for the current scope of what is permitted.
QWhat is the uptick rule?
The uptick rule prohibits placing short sale orders at or below the last price, to prevent short selling from directly pushing prices down. For example, if the last price is KRW 49,000, a short sale order can be placed only at a price above KRW 49,000. An exception is made for short selling by market makers for market-making purposes.
Source: Financial Services Commission Financial Glossary: Uptick Rule
QWhat sanctions apply to illegal short selling?
Illegal short selling is subject to criminal penalties such as fines and to administrative penalty surcharges. From April 23, 2025, new measures were introduced: orders restricting violators from trading financial investment products for up to 5 years or from being appointed as officers of listed companies and the like, and a system for suspending payments from accounts suspected of being used for illegal short selling. These also apply to those who commit the three major types of unfair trading.
QCan individual investors short sell?
Individuals mainly short sell by borrowing shares through the stock borrowing for margin trading service offered by securities firms. Because of creditworthiness and transaction size, it is difficult for individuals to participate directly in stock lending and borrowing transactions. Short selling involves losses that grow as the share price rises, as well as borrowing fees, so you should fully understand how it works.
Source: Short selling
QWhat is a dividend?
A dividend is a distribution of part of a company's profits to its shareholders; types include cash dividends paid in cash and stock dividends paid in new shares. Dividends are received in proportion to the number of shares held, and they are a distribution of after-tax profit to shareholders, not a company expense. There is no guarantee that dividends will continue to be paid.
Source: Dividend
QHow does a company decide how much to pay in dividends, and how?
Under the Commercial Act, a company may pay dividends up to the amount of net assets on its statement of financial position less capital stock, accumulated capital reserves and earned surplus reserves, the earned surplus reserve to be set aside for that fiscal period, and unrealized gains. In principle, dividends are decided by resolution of the general meeting of shareholders, but where the board of directors approves the financial statements, they are decided by board resolution. If dividends are paid in excess of the limit, the company's creditors may demand their return.
QHow do stock dividends differ from cash dividends?
A stock dividend pays the profit dividend in newly issued shares instead of cash; it requires a resolution of the general meeting of shareholders, and the shares are distributed at par value. Under the Commercial Act, stock dividends may not exceed one-half of the total profit dividend, but under a special provision of the FSCMA, stock-listed corporations may pay up to the full amount of the total profit dividend in shares if the market price is at or above par value. Shareholders who receive a stock dividend become shareholders of the new shares when that general meeting of shareholders ends.
QWhat are interim dividends and quarterly dividends?
A company that closes its accounts once a year may, if its articles of incorporation so provide, pay an interim dividend once during the business year by board resolution (Commercial Act). Stock-listed corporations may, as provided in their articles of incorporation, pay quarterly cash dividends by board resolution made within 45 days from the last day of March, June and September, and quarterly dividends must in principle be paid within 1 month from the date of the resolution. In both cases, there are limits based on factors such as the net assets of the preceding fiscal period.
QBy when must I buy shares to receive a dividend?
To determine which shareholders may exercise rights such as receiving dividends, a company sets a specific date (the record date) and grants the rights to the shareholders listed on the shareholder register on that date. Because Korean shares settle on T+2, you must buy at least 2 business days before the record date to be on the register on the record date. The record date must be set within 3 months before the date on which the rights are exercised and announced 2 weeks in advance, so check the record date in the company's disclosures.
QWhat does ex-dividend mean?
Ex-dividend means that buying the shares no longer comes with the right to receive the most recently declared dividend. On the ex-dividend date, it is relatively common for the share price to fall by roughly the amount of the dividend, reflecting the reduction in the company's assets from paying it out. Therefore, receiving a dividend does not simply add that amount to your profit.
Source: Dividend
QWhat is a paid-in capital increase?
A paid-in capital increase is when a company raises funds by issuing new shares and selling them to investors for money. The company can raise funds without bearing interest, but existing shareholders may experience dilution, as the total number of shares increases and their ownership percentage falls. It is important to check in the disclosures how the funds raised will be used.
Source: Paid-in capital increase
QHow do the methods of paid-in capital increase (shareholder allotment, general public offering, third-party allotment) differ?
Shareholder allotment is the basic method, in which existing shareholders are given the right to subscribe for new shares in proportion to their holdings. A general public offering issues new shares by taking subscriptions from the general public, and a third-party allotment gives specific persons who are not shareholders the right to subscribe for new shares. Because a third-party allotment greatly affects control of the company and the interests of existing shareholders, strict requirements apply, such as needing a basis in the articles of incorporation or a special resolution of the general meeting of shareholders.
Source: Financial Supervisory Service Financial Glossary (FINE): Capital Increase by Third-Party Allotment
QDoes a bonus issue increase a company's value?
No. A bonus issue (free capital increase) transfers reserves (mainly capital surplus) to capital stock by board resolution or similar means and distributes an equivalent number of new shares to shareholders; since no outside money comes in, total equity and corporate value remain substantively unchanged. The Financial Supervisory Service notes that the share price may rise temporarily because of the illusion that the stock looks cheap after the ex-rights date, but it may fall back if there is no change in real value.
QBy when must I buy to receive new shares from a bonus issue?
Bonus shares are allotted in proportion to the number of shares held by shareholders as of the record date for the allotment of new shares. Because settlement takes place on T+2, you must buy at least 2 business days before the record date to receive the new shares, and the stock goes ex-rights 1 business day before the record date. The higher the bonus issue ratio, the larger the price adjustment on the ex-rights date.
QWhat is a stock split, and does it affect the value of shares?
A stock split increases the number of shares by dividing the par value of each share while leaving the company's capital unchanged; because it amends the articles of incorporation, it requires a special resolution of the general meeting of shareholders. Since the company's assets and capital do not change, splitting 1 share into 2, for example, doubles the number of shares and roughly halves the price per share, but the value of your holding stays the same. Even after a split, the par value per share cannot fall below KRW 100.
Source: Stock
QWhat is a reverse stock split?
A reverse stock split (share consolidation) combines the par value of several issued shares into a smaller number of shares; it is the opposite of a stock split. After consolidation, the number of shares falls and the substantive stake represented by each share rises, but this does not in itself change the company's value.
Source: Financial Services Commission Financial Glossary: Reverse Stock Split (Share Consolidation)
QWhat is a share buyback (acquisition of treasury shares)?
A share buyback is when a company buys back shares it has issued. Under the Commercial Act, it may acquire them within the limit of distributable profits by prescribed methods such as purchases on the exchange, and listed companies may also acquire them indirectly through trust agreements. To prevent distortion of market prices, listed companies are subject to restrictions on the timing, quantity and price of acquisitions, and they must file a major matters report when the board resolves on a buyback and a results report when the acquisition is completed.
Source: Financial Supervisory Service Financial Glossary (FINE): Acquisition of Treasury Shares
QWhat is the PER (price-earnings ratio)?
The PER is the share price divided by earnings per share (EPS), showing how many times its per-share earnings a stock is trading at. If a company's PER is higher than its own historical trend or than that of other companies with similar earnings structures, its share price is sometimes judged to be highly valued relative to its earnings. However, interpretation can vary depending on the industry, growth prospects, one-off gains or losses and other factors.
Source: Bank of Korea Economic Glossary: Price-Earnings Ratio (PER)
QWhat is the PBR (price-to-book ratio)?
The PBR is the share price divided by book value per share (BPS), indicating the level of the share price relative to the company's net assets on its books. Whereas the PER judges the share price in terms of profitability, the PBR judges it in terms of financial structure. Both are used together as reference indicators for gauging the share price relative to corporate value.
Source: Bank of Korea Economic Glossary: Price-Earnings Ratio (PER)
QWhat is EPS (earnings per share)?
EPS is a company's net income divided by the number of shares issued, showing how much profit was earned per share over a year. A high EPS is interpreted to mean that business performance is good and there is ample capacity to pay dividends, and it is the basis for calculating the PER. If the number of shares increases through conversion of convertible bonds into shares or a capital increase, EPS falls.
Source: Bank of Korea Economic Glossary: Earnings Per Share (EPS)
QWhat is ROE (return on equity)?
ROE is net income divided by shareholders' equity (total equity), showing how much profit a company earned over a year using its shareholders' capital. For example, if a company with total equity of KRW 100 million earned net income of KRW 10 million, its ROE is 10%. Because of the relationship ROE = PBR ÷ PER, it is often compared together with the PER and PBR.
Source: Return on equity
QIs there a way to invest in many stocks with a small amount of money?
Buying many stocks directly requires a lot of money, but ETFs managed to track a stock index or similar benchmark let you achieve the effect of diversifying across many stocks even with a small amount. ETFs are listed on the exchange and can be bought and sold like stocks, and you can check which stocks they hold every day through their portfolio deposit file (PDF) disclosure. However, even if you spread your investment across many stocks, you can lose money if the market as a whole falls.
QWhat are the risks of margin trading (investing with borrowed money)?
Margin trading uses leverage, such as borrowing money from a securities firm (a margin loan) to buy shares; gains grow when prices rise, but losses also grow when they fall. If the share price falls and the account drops below the collateral maintenance ratio, the securities firm demands additional collateral, and if it is not provided by the deadline, the firm may sell the shares held at its own discretion (forced liquidation). If the proceeds are less than the amount borrowed, you could end up with a so-called 'empty account', losing your entire principal or more.
QWhat is unpaid-balance (misu) trading?
Unpaid-balance trading means buying shares on credit, using as collateral a margin deposit equal to part of the purchase price (usually 40% or more) and the shares you hold. If the remaining amount is not paid by the settlement date (T+2), the securities firm sells the shares in the account through forced liquidation.
Source: Financial Services Commission Financial Glossary: Unpaid-Balance Trading
QWhen is a stock delisted?
Delisting means a security loses its eligibility to be traded on the exchange; it may occur at the company's own request or by decision of the exchange on its own authority. Typical grounds include revenue or market capitalization falling short of requirements, complete capital impairment, an adverse audit opinion or a disclaimer of opinion, insufficient trading volume, final default, and embezzlement or breach of trust. The specific requirements follow each market's listing regulations and have recently been tightening, so check the exchange's rules.
Source: Delisting
QHow have delisting requirements changed recently?
In January 2025, the financial authorities announced measures to tighten delisting requirements and streamline procedures so that underperforming companies can be removed in a timely manner. The measures raise the market capitalization requirement (KOSPI from KRW 5 billion to KRW 50 billion, KOSDAQ from KRW 4 billion to KRW 30 billion) and the revenue requirement (KOSPI from KRW 5 billion to KRW 30 billion, KOSDAQ from KRW 3 billion to KRW 10 billion) in stages over several years starting in 2026, and shorten the maximum improvement period. They also include support for enabling shares of delisted companies to be traded on K-OTC.
QWhat is the 5% rule (large shareholding report)?
Under this system, a person who, together with specially related persons, comes to hold 5% or more of a listed company's shares or similar securities, or whose holding subsequently changes by 1% or more or whose purpose of holding changes, must report to the Financial Services Commission and the Korea Exchange within 5 days from that date. It covers not only legal ownership but also cases of substantive control, and it also applies to securities that can become shares, such as convertible bonds. Investors can check changes in major shareholders' stakes through the disclosures.
QWhat is the appraisal right (right to demand a share purchase)?
When the general meeting of shareholders resolves on a matter that greatly affects shareholders' interests, such as a merger or a transfer or acquisition of business, shareholders who opposed it have the right to demand that the company buy their shares. Dissenting shareholders must notify the company of their opposition in writing before the general meeting and submit a written purchase demand within 20 days from the date of the resolution, and the company must purchase the shares within 2 months from the end of the demand period. The purchase price is set by agreement, and if no agreement is reached, it follows the market price calculation method prescribed by law.
QWhy is trading on undisclosed information punished?
The FSCMA prohibits insiders, such as officers, employees and major shareholders of listed companies, and people who receive information from them, from using material non-public information that significantly affects investment decisions to trade shares, or letting others use it. Along with market manipulation and fraudulent trading, this is one of the three major types of unfair trading and is heavily punished. People who use information passed on to them by insiders can also be punished, so do not trade on 'inside information' from unclear sources.
QWhat is a market maker?
A market maker is a securities firm that signs a market-making agreement with the exchange and continuously presents two-way buy and sell quotes for predetermined stocks, acting as a counterparty to investors' trades. It supports smooth trading, reducing investors' transaction costs and improving price continuity.
Source: Financial Services Commission Financial Glossary: Market Maker System
QWhat should I be careful about when investing in overseas stocks?
Overseas stocks are exposed to exchange rate risk when you convert currency before buying and after selling, so you can incur a loss from currency movements even if the share price rises. Settlement dates differ by market, which can throw off your cash flow plans, and transaction costs such as brokerage commissions and currency conversion fees are often higher than for Korean stocks. The tax system also differs from that for Korean stocks, and you may become liable for capital gains tax and dividend income tax, so check the National Tax Service's guidance.
Source: Financial Supervisory Service press release: Investor precautions for trading overseas stocks
QWhy can holding a leveraged ETF for a long time lead to losses?
A leveraged ETF moves by a multiple of the underlying index's daily rate of change, so when the index repeatedly rises and falls, a 'compounding effect' can make the cumulative return lower than the underlying index's return. According to an FSS example, even if an index falls from 100 to 80 and then recovers to 100, a 2x leveraged ETF is left with a 10% loss and a 3x ETF with a 30% loss. High-multiple products in overseas markets without daily price limits can be even more volatile, so make sure you fully understand how they work.
Source: Financial Supervisory Service press release: Investor precautions for trading overseas stocks
07
Taxes & Tax Rules
This section gives an overview of investment-related tax rules, including how income from funds, interest and dividends is taxed, withholding tax and the comprehensive taxation of financial income, capital gains tax on stocks and securities transaction tax, ISAs and pension accounts, and the income deduction for KOSDAQ venture funds. Tax laws are amended frequently and taxes vary with individual circumstances, so be sure to check the National Tax Service's guidance or consult a tax professional before actually filing or paying.
QWhat taxes apply to money earned from funds?
Under the Income Tax Act, income received from a collective investment vehicle (fund) is in principle classified as dividend income. Individual investors generally receive the income after tax has been withheld at the time of payment, and if the total combined with other interest and dividend income exceeds KRW 20 million a year, it may become subject to comprehensive taxation. Whether tax applies and how much depends on the product structure and your personal circumstances, so check the National Tax Service's guidance or consult a tax professional.
Source: Income Tax Act, Article 17 (Dividend Income) [effective 2026-01-01]
QWhat requirements must be met for fund income to be taxed as dividend income?
According to the National Tax Service, the fund must be a collective investment vehicle under the FSCMA that settles its accounts and makes distributions at least once a year, and that receives money in trust and pays it back in money. Trusts established overseas are treated as collective investment vehicles even if they do not meet these requirements. If you want to know whether a fund meets the requirements, check its collective investment rules or ask the distributor.
Source: National Tax Service Tax Guide: Income from Collective Investment Vehicles
QAre gains from trading listed stocks inside a fund taxed?
According to the National Tax Service, gains and losses arising from a collective investment vehicle's trading or valuation of securities listed on the securities market, or of exchange-traded derivatives based on them, are not included in taxable income. The same applies to gains and losses on shares and equity interests in venture companies under the law on fostering venture businesses. However, the detailed scope is set by the Enforcement Decree, and income from other sources such as interest and dividends is taxed, so check the prospectus and the National Tax Service's guidance for how each type of fund is taxed.
Source: National Tax Service Tax Guide: Income from Collective Investment Vehicles
QWhen is tax taken from fund income?
Under the Enforcement Decree of the Income Tax Act, fund income is in principle recognized on the date it is paid, or, where there is a special agreement to add distributions to principal, on the date they are added to principal. Tax is usually withheld when you receive income through distributions upon account settlement or through redemption. The actual timing of withholding may differ depending on the product and how it is traded, so check with your distributor.
Source: National Tax Service Tax Guide: Timing of Recognition of Financial Income
QIf I reinvest my fund distributions, is there no tax?
Even if you reinvest distributions instead of receiving them in cash, distributions that are subject to a special agreement to add them to principal are deemed to be income on the date they are added to principal. Therefore, they may be taxed at the time of distribution regardless of whether they are reinvested. For the specific treatment, check the fund's collective investment rules and your distributor's guidance.
Source: National Tax Service Tax Guide: Timing of Recognition of Financial Income
QDo I pay securities transaction tax when redeeming a fund, as with stocks?
The Restriction of Special Taxation Act provides that when a collective investment vehicle meeting certain requirements redeems its own collective investment securities, the investor's transfer of those securities is not regarded as a 'transfer' under the Income Tax Act and the Securities Transaction Tax Act. Therefore, ordinary fund redemptions are not taxed as transfers in the way stock sales are, and income received on redemption is taxed as dividend income. Check with your distributor or the National Tax Service on how individual products are taxed.
QWhat counts as interest income?
Interest income includes interest and discounts on bonds and securities issued by the State, local governments, domestic corporations and foreign corporations; interest on domestic and overseas deposits; gains from repurchase agreement trading of bonds; insurance gains on certain savings-type insurance; and income from non-business lending, among others. The amount of interest income is the total revenue for the tax period as is, without deducting necessary expenses. The specific scope is set out in the Income Tax Act and its Enforcement Decree.
Source: Income Tax Act, Article 16 (Interest Income) [effective 2026-01-01]
QWhat counts as dividend income?
Dividend income includes dividends of profits or surplus received from domestic and foreign corporations, deemed dividends, income from collective investment vehicles, and income from derivative-linked securities and derivative-linked bonds, among others. Income from derivative-linked securities whose returns depend on gold or silver prices, such as gold and silver banking, is also treated as dividend income. Dividend income is also in principle subject to withholding when paid.
Source: National Tax Service Tax Guide: Scope of Dividend Income
QWhat is withholding tax?
Withholding is a system in which the payer of income (the withholding agent) deducts tax in advance when paying the recipient and pays it to the State on the recipient's behalf. This is why the deposit interest or fund distributions you receive have already had tax taken out. In some cases, withholding concludes the tax liability (separate taxation); in others, the income is combined with other income and settled again (comprehensive taxation).
Source: National Tax Service Tax Guide: Withholding Tax Overview - Withholding System
QWhat is the withholding tax rate on interest and dividend income?
Under the Income Tax Act, the withholding rate on ordinary interest and dividend income is 14%, with local income tax added separately. A rate of 25% applies to income from non-business lending and to dividend income of investing partners in joint businesses, and 45% to income whose real-name holder has not been verified. Rates may vary by type of income and product, so check the National Tax Service's guidance.
Source: Income Tax Act, Article 129 (Withholding Tax Rates) [effective 2026-01-01]
QWhy is 15.4% taken from my deposit interest?
In addition to the 14% income tax withholding rate on interest and dividend income, personal local income tax equal to 10% of the income tax amount (1.4%) is specially collected at the same time. Withholding agents are required to collect local income tax at the same time as they withhold income tax. That is why ordinary interest and dividend income is paid with 15.4% deducted.
Source: National Tax Service Tax Guide: Withholding Tax Overview - Withholding System
QIs no tax withheld if the withholding amount is under KRW 1,000?
There is a small-amount exemption under which tax is not withheld if the withholding amount is less than KRW 1,000. However, for interest income paid to residents, tax must be withheld even if the amount is less than KRW 1,000. That is why even small amounts of deposit interest may be paid with tax deducted.
Source: National Tax Service Tax Guide: Withholding Tax Overview - Withholding System
QWhat is the comprehensive taxation of financial income?
Under the Income Tax Act, if financial income (interest and dividend income combined) is KRW 20 million or less a year and tax has been withheld, the principle is separate taxation, in which taxation is concluded by withholding. If annual financial income exceeds KRW 20 million, it is combined with other global income such as employment and business income and taxed at progressive rates; this is called the comprehensive taxation of financial income. In that case, you must file a global income tax return the following year, so check on the National Tax Service's Hometax or similar channels.
Source: Income Tax Act, Article 14 (Calculation of Tax Base) [effective 2026-01-01]
QIf my financial income exceeds KRW 20 million, is all of it taxed at higher rates?
No. Under the special provisions of the Income Tax Act for calculating tax under comprehensive taxation, the withholding rate (14%) applies to financial income up to KRW 20 million, and only the portion above KRW 20 million is combined with other global income and taxed at the basic rates. However, the tax calculated this way is compared with, among other things, the tax calculated by applying the withholding rate to all financial income, and the larger amount becomes the calculated tax. The actual burden depends on the size of your other income, so we recommend checking the National Tax Service's guidance or consulting a tax professional.
QWhat are the global income tax rates?
The global income tax rates for income attributable to 2023-2025, as published by the National Tax Service, are 8 progressive brackets ranging from 6% for a tax base of KRW 14 million or less to 45% for a tax base over KRW 1 billion. For example, the bracket over KRW 50 million up to KRW 88 million is taxed at 24%, and the bracket over KRW 150 million up to KRW 300 million at 38%. Local income tax is added separately; check the rates for each attribution year on the National Tax Service website.
QWhen do I file a global income tax return?
Anyone with global income in a given year must file and pay global income tax from May 1 to May 31 of the following year (by June 30 for those submitting a confirmation of faithful filing). Those who have only employment income and have completed year-end tax settlement, or who have only tax-exempt or separately taxed income, among others, do not need to file a final return. Returns can be filed electronically on Hometax (hometax.go.kr).
Source: National Tax Service Tax Guide: Global Income Tax - Filing and Payment of Global Income Tax
QWhat is the dividend 'gross-up'?
Because dividends are paid out of profits on which corporate tax has already been paid, under comprehensive taxation an amount equal to certain dividend income multiplied by a gross-up rate is added to income, and the same amount is then deducted from the calculated tax (dividend tax credit) to adjust for double taxation. According to the National Tax Service's commentary on the amended tax laws, the gross-up rate was adjusted from 10% to 11% in line with the corporate tax rate increase, applying to income received on or after January 1, 2027. Check the National Tax Service's guidance for the dividends covered and the calculation method.
Source: National Tax Service Commentary on the 2026 Tax Law Amendments (pp. 46-48, financial investment)
QWhat is the separate taxation of dividend income from high-dividend companies?
For dividends paid on or after January 1, 2026, cash dividends that residents receive from high-dividend listed corporations meeting the requirements can be excluded from the comprehensive taxation of financial income and taxed separately. According to the National Tax Service's commentary on the amended tax laws, 4 rates of 14%, 20%, 25% and 30% apply by tax base bracket, and taxpayers apply by submitting a separate taxation application with their final global income tax return. It applies up to dividends attributable to the business year that includes December 31, 2028, so check the National Tax Service's guidance for the detailed requirements.
Source: National Tax Service Commentary on the 2026 Tax Law Amendments (pp. 244-248, financial investment)
QCan income received through a fund also qualify for separate taxation of high-dividend company dividends?
In the National Tax Service's commentary on the amended tax laws, the description of what is covered by the separate taxation of high-dividend company dividends shows public and private funds, REITs and special purpose companies (SPCs), among others, as excluded. It also specifies that the dividends eligible for separate taxation are cash dividends, excluding stock dividends and the like. Whether it applies to investments made through funds may vary case by case, so check with the National Tax Service or a tax professional.
Source: National Tax Service Commentary on the 2026 Tax Law Amendments (pp. 244-248, financial investment)
QIs capital gains tax charged on profits from selling stocks?
Under the Income Tax Act, listed shares are subject to capital gains tax when transferred by major shareholders, or when transferred outside the securities market by persons who are not major shareholders. Transfers of unlisted shares and of shares issued by foreign corporations or listed on foreign markets are also taxable. On the other hand, gains that minority shareholders who are not major shareholders make from trading listed shares on the securities market are not subject to capital gains tax (securities transaction tax applies separately).
Source: Income Tax Act, Article 94 (Scope of Capital Gains) [effective 2026-01-01]
QHow is a 'major shareholder' who pays capital gains tax on stocks determined?
The Income Tax Act provides that the major shareholders subject to capital gains tax on listed shares are to be defined by Presidential Decree, taking into account factors such as the shareholding ratio and market value. The specific shareholding ratio and holding value thresholds are set in the Enforcement Decree and may change as tax laws are amended. Check the National Tax Service's guidance or consult a tax professional on whether you count as a major shareholder.
Source: Income Tax Act, Article 94 (Scope of Capital Gains) [effective 2026-01-01]
QWhat are the capital gains tax rates on stocks?
Under the Income Tax Act, shares transferred by major shareholders are taxed at 20% on a tax base of up to KRW 300 million and 25% on the portion over KRW 300 million, and at 30% for shares of companies other than small and medium-sized enterprises held for less than 1 year. When persons who are not major shareholders transfer taxable shares, 10% applies to shares of small and medium-sized enterprises and 20% to other shares. Foreign shares are taxed at 10% for shares of small and medium-sized enterprises and 20% for other shares, with local income tax charged separately.
Source: Income Tax Act, Article 104 (Capital Gains Tax Rates) [effective 2026-01-01]
QWhen do I file capital gains tax on stocks?
According to the National Tax Service, when you transfer shares, you must file a preliminary return and pay within 2 months from the last day of the half-year in which the transfer date falls, and if you made several transfers during a half-year, you report them together for that half-year. Even if you have filed a preliminary return, you may need to file a final return in May of the following year if the tax amount changes, for example because progressive rates apply. Failure to file may result in penalty taxes, so be sure to check the deadlines.
Source: National Tax Service Tax Guide: Capital Gains Tax - What Is Capital Gains Tax?
QWhat are the consequences of not filing capital gains tax?
If you do not file a preliminary or final return, the government determines the tax and notifies you, and a penalty tax for failure to file (20% or 40%) and a late payment penalty tax of 0.022% per day may be added. If the tax payable exceeds KRW 10 million, you may pay part of it in installments within 2 months after the payment deadline. Check the National Tax Service's guidance for deadlines and calculation methods.
Source: National Tax Service Tax Guide: Capital Gains Tax - What Is Capital Gains Tax?
QIs income from derivatives trading taxed?
Yes. According to the National Tax Service, income from trading derivatives based on domestic or foreign stock indices, contracts for difference (CFDs), equity-linked warrants (ELWs), overseas exchange-traded derivatives and the like is subject to capital gains tax. The rate under the Income Tax Act is 20%, which may be lowered by Enforcement Decree for purposes such as fostering the capital market. For derivatives, there is no preliminary return; you file a final return and pay for the whole year in May of the following year.
Source: National Tax Service Tax Guide: Capital Gains Tax - What Is Capital Gains Tax?
QWhat is the securities transaction tax?
Securities transaction tax is levied on the transfer of shares or equity interests, with the transfer price as the tax base, so it is charged when you sell, regardless of whether you made a profit. For shares traded on the securities market, the Korea Securities Depository or a similar institution is the taxpayer, and for transfers through a securities firm, that financial investment business entity is the taxpayer; it collects the tax from the selling investor at settlement. Transfers by the State or local governments and transfers of shares listed on foreign securities markets, among others, are not taxed.
Source: Securities Transaction Tax Act [effective 2022-07-01] (Articles 1 to 17)
QWhat is the securities transaction tax rate?
According to the National Tax Service's commentary on the 2026 tax law amendments, for transfers on or after January 1, 2026, KOSPI-listed shares are subject to securities transaction tax of 0.05% plus special tax for rural development of 0.15%, KOSDAQ and K-OTC shares to 0.20%, and KONEX shares to 0.1%. In other cases, the basic rate of 0.35% applies. Rates may change through amendments to the Enforcement Decree, so check the rate in effect at the time of your trade.
Source: National Tax Service Commentary on the 2026 Tax Law Amendments (p. 375, financial investment)
QAre gains from selling bonds taxed?
For individuals, bonds are not listed among the assets subject to capital gains tax under the Income Tax Act, so trading gains arising from changes in bond prices are generally not taxed in themselves. However, when you sell a bond or receive interest, the amount equivalent to interest for your holding period is treated as interest income and taxed. If you invest in other forms, such as funds or derivative-linked securities, the tax treatment may differ, so check.
Source: Income Tax Act, Article 46 (Special Provisions for Calculating Income from Bonds, etc.)
QWill the financial investment income tax be implemented?
The government's 2024 tax law amendment proposal included the abolition of the financial investment income tax, and the provisions on financial investment income in the current Income Tax Act were deleted by an amendment on December 31, 2024. Therefore, the current system of taxing interest and dividend income, taxing capital gains on shares held by major shareholders and others, and levying securities transaction tax remains in place. Tax laws may be amended every year, so check the latest announcements from the Ministry of Finance and Economy and the National Tax Service.
QWhat kind of account is an ISA (Individual Savings Account)?
An ISA is an account in which you can invest in various financial products, such as deposits, funds and listed shares, within a single account and receive tax benefits on the interest and dividend income generated. Under the Restriction of Special Taxation Act, each person may hold only 1, and it is opened through an investment broker, discretionary investment manager or trust company. The contract period must be at least 3 years, and the tax benefit is calculated at termination by netting the gains and losses within the account.
QWho can open an ISA?
Under the Restriction of Special Taxation Act, residents aged 19 or older as of the date of opening or extension, or residents aged 15 or older who had employment income in the preceding tax period, may open one. Each person may hold only 1 account. Income requirements and the like are verified by the National Tax Service and notified to financial companies, so ask a financial company whether you are eligible.
QWhat is the tax-free limit for an ISA?
Under the Restriction of Special Taxation Act, up to KRW 2 million of the combined interest and dividend income from an ISA is tax-free, and up to KRW 4 million for the low-income type and the farmer/fisher type, which require meeting conditions such as total wages of KRW 50 million or less in the preceding tax period. Amounts above the tax-free limit are taxed separately at 9% and are not included in the comprehensive taxation of financial income. When income is calculated, losses from products within the account are deducted.
QWhat happens if I terminate an ISA before 3 years?
If you terminate the account before 3 years have passed from the initial contract date, the tax corresponding to the tax benefits you have received is recovered. However, this does not apply to termination for unavoidable reasons prescribed by Presidential Decree, such as death or emigration. Even before 3 years, you may withdraw up to the amount of principal paid in, but withdrawals exceeding the principal paid in are treated as early termination.
QHow much can I put into an ISA?
Under the Restriction of Special Taxation Act, the annual contribution limit for an ISA is KRW 20 million, and unused limits accumulate for each year that has passed since opening (up to 4 years), for a total contribution limit of KRW 100 million. If you have joined asset-formation savings or long-term collective investment securities savings, the total limit is reduced by the contract amount of those accounts. You can check the details on limits with the financial company where you opened the account.
QWhat products can I invest in through an ISA?
An ISA can be invested in deposit-type products such as deposits and savings, collective investment securities (funds), derivative-linked securities and derivative-linked bonds, shares of stock-listed corporations and the like. According to the National Tax Service's commentary on the 2026 tax law amendments, it has been clarified that collective investment vehicles established overseas (offshore funds) cannot be held. The products that can actually be held may vary by account type, so check with your financial company.
Source: National Tax Service Commentary on the 2026 Tax Law Amendments (pp. 240-242, financial investment)
QWhat changes if I move my matured ISA money into a pension account?
If all or part of the balance of an ISA that is more than 3 years past its contract date is paid into a pension account, that ISA is deemed to have reached the end of its contract period. According to the National Tax Service, amounts paid into a pension account within 60 days of the ISA's maturity date can be contributed separately from the annual pension account contribution limit (KRW 18 million). For specifics such as the tax benefits of the transfer, check with the National Tax Service or your financial company.
Source: National Tax Service Tax Guide: Pension Income - Scope of Pension Income
QWhat types of pension accounts are there?
Pension accounts include pension savings accounts opened under the name 'pension savings' (pension savings insurance, pension savings funds and pension savings trusts) and retirement pension accounts such as defined contribution (DC) and individual retirement pension (IRP) accounts. Money received as a pension from a pension account is taxed as private pension income. Whether principal is protected and how the money is managed differ by product, so check whether a product suits your purpose.
Source: National Tax Service Tax Guide: Pension Income - Scope of Pension Income
QHow much can I contribute to pension accounts each year?
The annual contribution limit for pension accounts, combining pension savings accounts and retirement pension accounts, is KRW 18 million; if you have several accounts, the total across them is what counts. In addition, amounts such as matured ISA money moved into a pension account and the proceeds from downsizing a home by a qualifying single-home owner aged 60 or older (up to a cumulative KRW 100 million) can be contributed separately. Note also that you cannot make contributions after you have started receiving a pension.
Source: National Tax Service Tax Guide: Pension Income - Scope of Pension Income
QWhat requirements must be met to receive a pension from a pension account?
According to the National Tax Service, a withdrawal is recognized as 'pension receipt' only if the account holder applies to start receiving a pension after age 55, 5 years have passed since the account was opened, and the withdrawal is within the annual pension receipt limit. Withdrawals exceeding the limit or not meeting the requirements are treated as 'non-pension withdrawals' and taxed at different rates. Withdrawals for unavoidable reasons, such as medical purposes or natural disasters, may be recognized as pension receipts if certain documentation is provided.
Source: National Tax Service Tax Guide: Pension Income - Scope of Pension Income
QHow much tax is withheld when I receive a pension from a pension account?
Under the Income Tax Act, when contributions for which a tax credit was received and investment returns are received as a pension, tax is withheld at 5% if you are under 70 as of the date of receipt, 4% if you are 70 or older but under 80, and 3% if you are 80 or older. Life-annuity contracts that pay until death are taxed at 3%, and if both conditions apply, the lower rate is used. When retirement income is received as a pension, 50%-70% of the withholding rate for non-pension withdrawals applies, depending on the actual year of receipt.
Source: Income Tax Act, Article 129 (Withholding Tax Rates) [effective 2026-01-01]
QHow is tax handled if I withdraw money from a pension account early?
According to the National Tax Service, non-pension withdrawals from a pension account are subject to a 15% withholding rate as other income. This applies when contributions for which a tax credit was received and investment returns are withdrawn other than as a pension. If deferred retirement income (retirement pay transferred into the account) is withdrawn other than as a pension, it is taxed as retirement income, so check the expected tax with your financial company before withdrawing.
Source: National Tax Service Tax Guide: Tax Rates - Withholding Tax Rates
QCan I get a tax credit for contributions to pension savings and IRP accounts?
Contributions to pension accounts are eligible for a tax credit within the limits set by tax law, and the amounts for which a credit was received are taxed as pension income when later received as a pension. Contributions for which no credit was received, or contributions exceeding the credit limit, are treated differently, for example by being excluded from taxation when withdrawn. Tax credit limits and rates may vary with income level and tax law amendments, so check the National Tax Service's guidance.
Source: National Tax Service Tax Guide: Pension Income - Scope of Pension Income
QCan I get an income deduction for investing in a KOSDAQ venture fund?
Under the Restriction of Special Taxation Act, when a resident invests in the beneficiary certificates of a venture company investment trust (KOSDAQ venture fund), 10% of the investment amount can be deducted from global income, with the deduction capped at 50% of global income. According to the National Tax Service's commentary on the amended tax laws, for investments made on or after January 1, 2026, the cap on the investment amount eligible for the deduction changed to KRW 20 million per person per year, and the overall income deduction cap (KRW 25 million a year) also applies. The investment must be held for 3 years from the investment date, and you can choose in which of the 3 tax years starting with the investment year to take the deduction.
Source: National Tax Service Commentary on the 2026 Tax Law Amendments (pp. 226-233, financial investment)
QWhat happens if I redeem a KOSDAQ venture fund within 3 years?
Under the Restriction of Special Taxation Act, if after receiving the income deduction you transfer or redeem the beneficiary certificates (including partial redemptions) before 3 years have passed from the investment date, the tax corresponding to the income already deducted is recovered. However, it is not recovered if there is a reason prescribed by Presidential Decree, such as the investor's death. If you plan to take the deduction, plan your finances with the 3-year holding requirement in mind.
QHow is interest and dividend income received by foreigners (non-residents) taxed?
According to the National Tax Service, domestic-source interest and dividend income of non-residents without a domestic place of business is in principle taxed separately through withholding at 20% (14% for bond interest). Under the Income Tax Act, if the withholding rate is higher than the limited rate under a tax treaty, the treaty's limited rate applies. Because this depends on the country of residence and the terms of the treaty, check with the National Tax Service.
Source: National Tax Service Tax Guide: Taxable Income - Income Subject to Tax
QIf I paid tax abroad on dividends from overseas stocks or funds, do I have to pay again?
The Income Tax Act provides that if foreign income tax has been paid, the domestic withholding tax is reduced by the amount of that foreign income tax. If the tax paid abroad exceeds the domestic withholding tax, the excess is disregarded. The method of crediting foreign taxes paid on indirect investments through funds has partly changed under recent tax law amendments, so check the National Tax Service's guidance.
Source: Income Tax Act, Article 129 (Withholding Tax Rates) [effective 2026-01-01]
QDo I have to report overseas financial accounts?
If the total balance of overseas financial accounts held by a resident or domestic corporation exceeds KRW 500 million on any month-end day of the year, the accounts must be reported in June of the following year. This covers not only cash but also shares, bonds, collective investment securities, virtual assets and the like held in overseas accounts. Failure to report or underreporting may result in an administrative fine of 10% of the unreported amount (up to KRW 1 billion).
QHow is financial income taxed when the real name has not been verified?
According to the National Tax Service, a withholding rate of 45% applies to interest and dividend income whose real-name holder has not been verified, and 90% applies to income from non-real-name financial assets under the Act on Real Name Financial Transactions. Such income is subject to separate taxation, with taxation concluded by withholding. Always conduct financial transactions in your own real name to avoid these disadvantages.
Source: National Tax Service Tax Guide: Tax Rates - Withholding Tax Rates
QIn which year is financial income counted?
Interest and dividend income is counted as income for the year in which the 'time of receipt' prescribed by the Enforcement Decree of the Income Tax Act falls. For example, the time of receipt is the date interest is actually received for ordinary deposit interest, the date of the corporation's resolution on the disposition of surplus for dividends paid out of surplus, and the date of payment for fund income. Since the year in which income falls matters when determining whether the comprehensive taxation of financial income applies, check the time of receipt.
Source: National Tax Service Tax Guide: Timing of Recognition of Financial Income
QWhere can I get personal tax advice?
The tax information on this page is a general guide to the rules, and actual taxes vary with personal circumstances such as the composition of your income, holding periods and residency status. For accurate information, check the guidance on the National Tax Service website (nts.go.kr) and Hometax (hometax.go.kr) or consult a tax professional. Global income tax and other returns can be filed electronically on Hometax, which also offers a feature for filing national tax and local income tax together.
Source: National Tax Service Tax Guide: Global Income Tax - Filing and Payment of Global Income Tax
08
Investor Protection
This section summarizes the six major sales principles of the Financial Consumer Protection Act; the right to withdraw a subscription, the right to terminate unlawful contracts and the right to request access to records; dispute mediation and complaint procedures; the scope of deposit insurance; and how to respond to mis-selling, illegal stock 'leading rooms', illegal fundraising and impersonation fraud. The specific requirements for exercising these rights vary with the product and situation, so please check with the financial company or the Financial Supervisory Service.
QWhat is the Financial Consumer Protection Act?
The Financial Consumer Protection Act took effect on March 25, 2021, to strengthen the protection of financial consumers, prompted by events such as the mis-selling of derivative-linked funds (DLFs) in 2019. It sets out business conduct requirements for sellers and advisers of financial products, the financial dispute mediation system, and consumer rights such as the right to withdraw a subscription and the right to terminate unlawful contracts. A key feature is that it extended sales regulations, which previously applied only to some products, to all financial products in principle.
QHow does the Financial Consumer Protection Act classify financial products?
The Act divides all financial products into 4 types: deposit-type, loan-type, protection-type (insurance) and investment-type products. Stocks, funds, derivatives, trust contracts, discretionary investment contracts, P2P-linked investments and the like are investment-type products. If a product has attributes of two or more types, it is regarded as belonging to each of those types.
QHow do general financial consumers and professional financial consumers differ?
Professional financial consumers are consumers regarded as able to bear risk in light of their expertise in financial products or the size of their assets, such as the State, local governments, financial companies and stock-listed corporations; all others are general financial consumers. All six major sales principles apply to general financial consumers, whereas only the prohibition on unfair business practices, the prohibition on unfair solicitation and the advertising rules apply to professional financial consumers. General financial consumers therefore receive more extensive protection.
QWhat are the six major principles for selling financial products?
The six major sales principles are the business conduct requirements that the Financial Consumer Protection Act imposes on sellers and advisers of financial products: the suitability principle, the appropriateness principle, the duty to explain, the prohibition on unfair business practices, the prohibition on unfair solicitation, and advertising rules. In principle they apply to all financial products, but the scope of the suitability and appropriateness principles varies with the characteristics of the product. Financial companies that violate them may be sanctioned and held liable for damages.
QWhat sanctions do financial companies face for violating the six major sales principles?
According to the Financial Services Commission, violations of the six major sales principles can be subject to an administrative fine of up to KRW 100 million. Violations of the 4 principles other than suitability and appropriateness (the duty to explain, the prohibitions on unfair business practices and unfair solicitation, and the advertising rules) can be subject to punitive penalty surcharges of up to 50% of the related revenue or similar. Separately, the company is liable to compensate consumers harmed by the violation.
Source: [Press reference] 10 questions and answers on the Financial Consumer Protection Act
QWhat is the suitability principle?
The suitability principle requires a financial company, when recommending a product to a general financial consumer, to ascertain the consumer's investment objectives, financial situation, investment experience and so on through interviews, questions and the like, and not to recommend products that are unsuitable in light of that information. The information obtained must be confirmed by signature, recording or similar means and maintained, and the confirmed information must be provided to the consumer without delay. You need to provide accurate information in order to be recommended products that suit you.
Source: Financial Consumer Protection Act, Article 17 (Suitability Principle)
QWhat information is used to judge suitability?
For investment-type products, whether the consumer's capacity to bear losses is appropriate is judged by considering together the purpose of the transaction, the contract period, attitude toward risk in light of expected gains and losses, understanding of financial products, financial situation, investment experience, age and so on. For loan-type products, repayment ability is judged by the purpose of the transaction, the plan for repaying principal and interest, credit, income, debts and assets, fixed expenses, age and so on. Because the financial company makes its judgment based on the information the consumer provides, it is important to answer truthfully.
QHow does the appropriateness principle differ from the suitability principle?
The suitability principle applies when a financial company 'recommends' a product, whereas the appropriateness principle applies when a consumer seeks to buy a product on their own without a recommendation. Under the appropriateness principle, the financial company must ascertain the consumer's information and, if it judges the product not to be appropriate, inform the consumer of this and obtain confirmation by signature, recording or similar means. The appropriateness principle applies only to certain products, such as derivatives, derivative-linked securities and high-complexity financial investment products.
QDoes the suitability principle not apply if I sign up online (non-face-to-face)?
Even in non-face-to-face transactions, the suitability principle applies in principle if the financial company recommends a product after the consumer has indicated a wish to receive recommendations. Entering the information needed for personalized product recommendations, or selecting specific criteria such as returns or interest rates to find matching products, can be regarded as indicating a wish to receive recommendations. On the other hand, searching for a specific product by name and signing up is hard to regard as a recommendation.
QWhat is the duty to explain?
When recommending a contract to a general financial consumer, or when the consumer asks for an explanation, a financial company must explain the important features of the product in a way the consumer can understand. For investment-type products, the items to be explained include the product's details, investment risks, risk grade and fees, as well as the deadline, method and effect of withdrawing a subscription. When explaining, the company must not falsify, distort or omit important matters.
Source: Financial Consumer Protection Act, Article 19 (Duty to Explain)
QWhat should I do if I still don't understand after the explanation?
If you did not understand the explanation, hold off on signing or giving recorded confirmation that you 'understood', and ask for further explanation. The financial company has a duty to explain in a way you can understand and to obtain your confirmation of understanding by signature, name and seal, recording or similar means. It is not too late to sign the contract after you fully understand it.
QDo I have to receive the product description on paper?
No. The Enforcement Decree of the Financial Consumer Protection Act allows product descriptions to be provided in writing, by post or email, or by electronic means such as mobile text messages. The Financial Services Commission has explained that showing the contents of the description on a mobile app or tablet screen also counts as an electronic means. It is a good idea to keep the descriptions you receive for future reference.
Source: [Press reference] 10 questions and answers on the Financial Consumer Protection Act
QWhat is a key summary document?
A key summary document summarizes the important contents of a lengthy product description and is placed at the very front of it. It covers features that distinguish the product from similar products, potential disadvantages such as the risk grade of investment-type products, and contact details for complaints and inquiries. It is provided when you sign up for financial products other than deposit-type products, so read it carefully first.
QWhat counts as unfair business practices?
These are practices in which a financial company uses its superior position to infringe on consumers' rights and interests; typical examples are forcing a consumer to sign up for other financial products they do not want as a condition of a loan, or unfairly demanding collateral or guarantees. Demanding or receiving benefits in connection with its business and charging early repayment fees other than for the specified reasons are also prohibited. If you experience such practices, you can consult the financial company's complaints desk or the Financial Supervisory Service.
QWhat is unfair solicitation?
Unfair solicitation refers to practices in recommending a contract such as providing conclusive judgments on uncertain matters, misrepresenting the details of a product, or failing to disclose matters that significantly affect its value. It is also prohibited to claim that a product is better than others without objective grounds, to recommend investment products through unrequested visits or phone calls, or to keep recommending after the consumer has declined. Having people who have not completed job training under internal control standards carry out solicitation also constitutes unfair solicitation.
QIs it acceptable for a salesperson to say 'Your principal is absolutely guaranteed' or 'It will definitely go up'?
Making conclusive statements about uncertain matters, or leading consumers to mistakenly believe they are certain, constitutes unfair solicitation under the Financial Consumer Protection Act. Expressions in advertisements for investment-type products that give the misleading impression that losses will be compensated or profits guaranteed are also prohibited. If you hear such statements, check the risks in the product description yourself and, if necessary, contact the financial company or the Financial Supervisory Service.
Source: Financial Consumer Protection Act, Article 21 (Prohibition of Unfair Solicitation)
QCan a financial company recommend investment products to me by phone?
For investment-type products, recommending a contract through real-time conversation, such as visits or phone calls, without the consumer's request is prohibited. In addition, visiting or contacting consumers between 9 p.m. and 8 a.m. the next day for the purpose of introducing or recommending financial products is prohibited unless the consumer requests it. General financial consumers can demand that the company stop contacting them for solicitation purposes, and the company must comply immediately.
Source: Financial Consumer Protection Act, Articles 21 and 21-2
QWhat must financial product advertisements include?
Financial product advertisements must include a recommendation to read the product description and terms and conditions before signing a contract, the seller's name and the product's details. Advertisements for investment-type products must also state the investment risks and that past performance does not guarantee future returns. Showing only the performance for periods when returns were good is prohibited.
QDo I have to receive the contract documents?
When a financial product contract is concluded, the financial company must provide the contract documents, such as the contract, terms and conditions and product description, to the consumer without delay. If there is a dispute over whether the contract documents were provided or when the contract was concluded, the financial company must prove it. Contract documents are important evidence in a dispute, so check that you have received them properly and keep them.
QCan I cancel after investing in a fund if I change my mind?
Under the Financial Consumer Protection Act, general financial consumers can withdraw a subscription without penalty within a set period if the product is eligible for withdrawal. For investment-type products, withdrawal is possible within 7 days from the date you received the contract documents (or the contract date, if there is no obligation to provide documents). However, only certain investment-type products, such as high-complexity financial investment products, are eligible, and cases where you agreed to have the money invested during the withdrawal period are excluded, so first check whether your product qualifies.
Source: Financial Consumer Protection Act, Article 46 (Withdrawal of Subscription)
QWhich investment-type products are eligible for withdrawal of subscription?
Under the Enforcement Decree of the Financial Consumer Protection Act, the investment-type products eligible for withdrawal are high-complexity financial investment products that raise money only during a set period before starting collective investment, high-complexity discretionary investment contracts, trust contracts other than money trusts, and high-complexity money trust contracts. However, withdrawal is not possible if the consumer has agreed to have the deposited money invested during the withdrawal period. For high-complexity discretionary investment and money trust contracts that come with a deliberation period, the withdrawal period is calculated excluding that period.
Source: Enforcement Decree of the Financial Consumer Protection Act, Article 37 (Withdrawal of Subscription)
QHow do I withdraw a subscription?
Send notice of your intention to withdraw within the withdrawal period in writing, by email, by mobile text message or by similar means; for investment-type products, the withdrawal takes effect when the notice is sent. If you sent a letter or similar notice, you must inform the financial company without delay that you have sent it. The financial company may not claim damages or penalties because of the withdrawal.
Source: Enforcement Decree of the Financial Consumer Protection Act, Article 37 (Withdrawal of Subscription)
QWhen will I get my money back after withdrawing a subscription?
For investment-type products and financial product advisory contracts, the financial company must return the money already received within 3 business days from the date it receives the withdrawal. If the return is delayed, it must pay an additional amount, calculated in a prescribed manner, for the period of delay. Special terms that are less favorable to the consumer than the withdrawal provisions are void.
Source: Financial Consumer Protection Act, Article 46 (Withdrawal of Subscription)
QWhat is the right to terminate unlawful contracts?
If a financial company concluded a contract in violation of the suitability or appropriateness principle, the duty to explain, the prohibition on unfair business practices or the prohibition on unfair solicitation, the consumer may demand termination of that contract. The financial company must notify the consumer within 10 days of the demand whether it accepts, and if it refuses, it must also give the reasons. If it refuses without a justifiable reason, the consumer may terminate the contract, and in this case the company may not demand termination-related fees or penalties.
Source: Financial Consumer Protection Act, Article 47 (Termination of Unlawful Contracts)
QBy when can I demand termination of an unlawful contract?
Under the Enforcement Decree of the Financial Consumer Protection Act, you can make the demand within 1 year from the date you became aware of the violation, and this must be within 5 years from the contract date. To demand termination, you must submit the prescribed termination request form to the financial company together with documents proving the violation. Eligible products are financial products involving continuous transactions that are designated in a Financial Services Commission notice.
QIf I terminate an unlawful contract, do I get my investment losses back too?
Termination of an unlawful contract takes effect going forward, so it removes disadvantages from the time of termination onward; it is not a mechanism for compensating losses incurred before then. For a fund, no early redemption fee is charged, but fees and charges paid in connection with transactions before termination, and investment losses already incurred, are in principle not refunded. Damages caused by unlawful selling must be pursued through separate procedures, such as a claim for damages or dispute mediation.
Source: [Press reference] 10 questions and answers on the Financial Consumer Protection Act
QWhat is the right to request access to records?
In order to seek remedies such as dispute mediation or litigation, financial consumers can request access (including copies and listening to recordings) to records related to the conclusion and performance of contracts that the financial company records and keeps. If you submit an access request stating the purpose, scope and method of access, the financial company must allow access within 6 business days. If there is a justifiable reason, such as restrictions under laws and regulations or significant infringement of trade secrets, the company may postpone or limit access after giving the reasons.
QHow long do financial companies keep sales records?
Under the Enforcement Decree of the Financial Consumer Protection Act, records on the conclusion and performance of contracts, advertising materials, and records related to the exercise of consumer rights, such as withdrawals of subscription and terminations of unlawful contracts, must in principle be kept for 10 years. For products whose contract or coverage period exceeds 10 years, they are kept for that period. You can check the stored records when necessary by exercising the right to request access to records.
QWhat should I do if I have a dispute with a financial company?
You can apply for dispute mediation with the Financial Supervisory Service, and the Governor of the Financial Supervisory Service may recommend a settlement to the parties. If no settlement is reached within 30 days from the application date, the case is referred to the Financial Dispute Mediation Committee, which prepares a mediation proposal within 60 days. If a party does not accept the proposal within 20 days from the date it is presented, the party is deemed not to have accepted it.
Source: Financial Consumer Protection Act, Article 36 (Mediation of Disputes)
QWhat effect does a dispute mediation outcome have?
If both parties accept the mediation proposal, the mediation is concluded and has the same effect as a judicial settlement. Therefore, the same matter cannot be litigated again, and if one party does not comply, compulsory execution can be carried out on the basis of the mediation document. Decide whether to accept the proposal after reviewing its contents thoroughly.
QDoes applying for dispute mediation interrupt the statute of limitations?
Yes. Under the Financial Consumer Protection Act, an application for dispute mediation has the effect of interrupting the statute of limitations. However, it has no such effect if it is decided not to recommend a settlement or not to refer the case to the mediation committee; even then, if you file a lawsuit or take similar action within 1 month, the limitation period is deemed to have been interrupted at the time of the original application. The interrupted limitation period starts running anew from the acceptance of the mediation proposal or the end of the mediation procedure.
Source: Financial Consumer Protection Act, Article 40 (Interruption of Prescription)
QCan a financial company avoid mediation by filing a lawsuit during the dispute mediation process?
In small claims disputes, i.e., cases filed by general financial consumers in which the value of the rights or interests claimed is KRW 20 million or less, once the mediation procedure has begun, the financial company may not file a lawsuit until the mediation proposal has been presented. In addition, if litigation is pending in a case for which mediation has been requested, the court may suspend the litigation until the mediation ends. These rules are designed to prevent financial companies from avoiding dispute mediation through litigation.
Source: Financial Consumer Protection Act, Articles 41 and 42
QIf I suffered losses because of a breach of the duty to explain, do I have to prove the financial company was at fault?
Under the Financial Consumer Protection Act, a financial company that causes losses by violating the law is liable for damages. In particular, where losses arise from a breach of the duty to explain, the financial company is liable unless it proves that it acted without intent or negligence. The consumer need only prove the violation, the loss and the causal link between them, which reduces the burden of proof.
QWho is responsible if I suffer losses after signing up through a sales agent?
Under the Financial Consumer Protection Act, a direct seller of financial products is liable for damages if a sales agent or broker acting on its behalf causes losses to a consumer in the course of business. However, the direct seller may be exempt from liability if it exercised due care in appointing and supervising the agent or broker and made efforts to prevent the losses. Remember also that sales agents and brokers are in principle prohibited from receiving investment money directly from consumers.
QWhat should I check when dealing with a sales agent or broker?
Sales agents and brokers must display a sign or show a credential indicating that they are an agent or broker, so it is a good idea to check this first to determine whether they are registered before dealing with them. Agents and brokers are in principle prohibited from receiving investment money or insurance premiums directly from consumers, re-delegating agency or brokerage work to third parties, or receiving money or goods from the direct seller beyond the prescribed fees. If you receive such a request, stop the transaction and check with the financial company concerned.
QCan I check whether a door-to-door or telephone salesperson actually works for the financial company?
Under the Financial Consumer Protection Act, a financial company that intends to conduct door-to-door or telephone sales must keep a register of the officers and employees involved and must allow consumers to verify their identity at any time on request. Salespeople must state in advance that the visit or call is for the purpose of sales solicitation, as well as their name and the type and details of the products they are selling. If you have doubts about someone's identity, verify it directly through the financial company's official contact details.
QHow can I get advice from the Financial Supervisory Service?
By calling the Financial Supervisory Service call center (1332, no area code needed), you can get advice on financial matters in general, including banking, insurance and securities. Besides phone calls, you can also get advice by visiting the Financial Supervisory Service or online, and if the matter is not resolved through consultation, you can file a complaint. You can also get advice in situations that require a quick response, such as losses from voice phishing or other fraud.
QHow is a complaint filed with the Financial Supervisory Service handled?
Complaints that have not gone through the financial company first go through voluntary mediation between the complainant and the financial company, while complaints that have already gone through the financial company or were not resolved by voluntary mediation are handled directly by the Financial Supervisory Service. Complaints can be filed online, by post, by fax or in person. Monetary disputes between a financial company and a consumer are classified as dispute complaints and may proceed to the dispute mediation procedure.
QAre there dispute mediation bodies other than the Financial Supervisory Service?
Disputes related to the business conduct of financial investment companies can also be mediated by the Korea Financial Investment Association. The Korea Exchange mediates disputes related to trading on the KOSPI, KOSDAQ and derivatives markets, and the Korea Consumer Agency mediates disputes between consumers and businesses. Choose the body that fits the nature of your dispute.
Source: Financial Supervisory Service: Guide to related dispute mediation bodies
QWhat is the deposit insurance limit, and are investment products protected?
From September 1, 2025, the deposit insurance limit is KRW 100 million per person per financial company, including principal and interest. Deposits, investor deposits and the like are protected, but investment products whose payouts vary with performance, such as funds, and bond-type financial products are not. Check the Korea Deposit Insurance Corporation's guidance for the specific products covered.
Source: Wikipedia (Korean): Korea Deposit Insurance Corporation
QIs the cash I keep in my securities account protected?
Under the deposit insurance system, not only deposits received by insured financial institutions but also investor deposits are protected. Therefore, cash left in a securities account before buying shares may be protected, but investment products bought with that money whose payouts vary with performance, such as shares, funds and bonds, are not. The protection limit applies to the combined principal and interest per person per financial company, so check the Korea Deposit Insurance Corporation's guidance.
Source: Wikipedia (Korean): Korea Deposit Insurance Corporation
QAre products that pay principal and interest, such as bonds or ELBs, covered by deposit insurance?
No. The Financial Supervisory Service advises that bonds, unlike deposits and savings, are excluded from deposit insurance. Derivative-linked bonds (ELBs) are also not covered by deposit insurance even if designed to pay back principal and interest, so if the issuing securities firm goes bankrupt, you may not get your principal and interest back. Even if a product is described as being of the 'principal-and-interest payment type', check separately whether it is protected.
QWhat is mis-selling?
Mis-selling means a financial company selling a product without observing the sales principles, for example by not adequately explaining the product's structure or risks or by recommending a product that does not suit the investor's profile. In one Financial Supervisory Service dispute mediation case, violations of the duty to explain and the suitability principle were recognized and the company was required to compensate part (30%) of the loss. However, the compensation ratio is often determined by also taking into account factors such as the investor's own failure to review the product carefully.
QWhat should I check to avoid being mis-sold?
For investment-type products, check the return structure, risk grade and investment risks in the product description and key summary document, and ask the seller to explain them in plain terms. If something is unclear, ask for further explanation before signing, and answer the investment profile assessment truthfully. After signing, check that you have properly received the contract documents and keep them; this will help you exercise your rights if a problem arises.
QAre there separate safeguards for elderly investors?
BNB Asset Management's Investment Solicitation Guidelines define investors aged 65 or older as elderly investors and those aged 80 or older as very elderly investors, and set separate protection standards for sales to them. When selling products that require caution in investment solicitation to very elderly investors, the firm advises them that they can get help from a family member or other assistant, and if such assistance is difficult to arrange, a managerial employee may be present to confirm their understanding. Consultations may be recorded (audio or video) or documented and kept in preparation for disputes.
QHow can I spot an illegal stock 'leading room'?
The Financial Supervisory Service has warned that businesses soliciting investment in social media group chat rooms with the lure of high returns are likely to be unauthorized or disguised financial investment businesses. They often have victims download a private HTS (trading program), take their money, make it look as though profits are being made, and then stall when withdrawals are requested before disappearing. Regulated financial companies do not distribute private HTS through messenger apps, so if you receive such a pitch, stop trading and report it to the Financial Supervisory Service or the police.
QIs one-on-one investment advice from a quasi-investment advisory business legal?
According to the Financial Supervisory Service, since July 2024 quasi-investment advisory businesses may make recommendations only through one-way channels in which the other party cannot type messages, and only registered investment advisory businesses may operate through two-way channels. If you want one-on-one investment advice, first check whether the business is a registered investment advisory firm and confirm its name and the identity and contact details of its operator. You can check registration using the regulated financial company search on the financial consumer information portal 'FINE'.
QA famous investment expert is recommending overseas stocks in an open chat room. Can I trust it?
The Financial Supervisory Service has warned of illegal 'leading' schemes in which fraudsters impersonating famous investment experts recommend little-known small-cap overseas stocks in open chat rooms, then sell and disappear once the buying pushes the price up. The pattern was to let victims make small profits the first few times to build trust, then have them buy with all their funds at the end, after which the share price plunged by 80% or more. Fraud carried out overseas is hard to obtain redress for, so be especially careful with investment pitches on social media.
QWhen I tried to withdraw my money, I was told to pay more because of an 'FSS source-of-funds investigation'.
The Financial Supervisory Service has warned of illegal leading-room scams that demand additional deposits from investors seeking withdrawals, using pretexts such as an FSS investigation into the source of funds. These operators lure people with advertisements for free stock lectures or tips on soaring stocks, have them install fake stock trading apps, make it look as though profits have been made, and then take their money. Never comply if someone demands a deposit citing the FSS; stop trading immediately and report it to the Financial Supervisory Service's Illegal Finance Report Center.
QWhat is illegal fundraising (unauthorized deposit-taking)?
Illegal fundraising is the unlawful practice of raising money from the general public, without authorization or a license from the financial authorities, by promising guaranteed principal and high returns. Typical features include multi-level schemes that pay referral bonuses for bringing in new investors, money transactions with no actual trade in goods, and presenting business registration and the like as if the government had permitted the fundraising. If someone offers to guarantee both principal and high returns, suspect illegal fundraising first and check with the Financial Supervisory Service.
QWhy are investment ads promising 'guaranteed principal with high returns' dangerous?
The Financial Supervisory Service has warned about illegal fundraising that promises guaranteed principal and high returns while circulating fake videos of investment success stories and the like, and urges people to remember: 'High returns? Guaranteed principal? There is no such investment.' Recently, cases have been reported of operators taking investment money on the pretext of investing in new technology development, automated trading programs or financial consulting, then stalling on withdrawals and disappearing. Before dealing with any such offer, be sure to check whether it comes from a regulated financial company.
QWhat if a securities firm employee asks me to send investment money to a personal account?
Never send money. According to the Financial Supervisory Service, all legitimate securities firm transactions take place only through accounts in the investor's own name, and securities firms never accept investment money into an employee's personal account under any circumstances. If you have received such an offer or are already dealing with such a person, stop immediately and report it to the securities firm concerned, the Financial Supervisory Service (1332) or the police (112).
QHow can I check whether a company soliciting investment is a genuine financial company?
You can check whether the company is a financial company that has received authorization, a license or registration using the 'regulated financial company search' on the financial consumer information portal 'FINE' (fine.fss.or.kr). Illegal businesses sometimes impersonate financial companies such as savings banks or capital companies, so if you are aggressively offered things like government-backed loans through internet ads or text messages, suspect impersonation first. If you suspect that someone contacting you is impersonating BNB Asset Management, please verify directly through our official contact details.
QWhere do I report suspected illegal financial activity?
The Financial Supervisory Service operates various reporting channels, including reports of illegal online financial activity, damage reports concerning quasi-investment advisory businesses, reports of illegal private lending and illegal fundraising, and reports of unfair securities trading. You can get advice from the Financial Supervisory Service call center (1332), and if you have suffered financial loss or suspect a crime, also report it to the police (112). Keeping evidence such as chat records and deposit records will help with reporting and obtaining redress.
Source: Financial Supervisory Service FINE: Guide to reporting, consultation and advisory services
09
Bonds, Interest Rates & Exchange Rates
This section covers questions investors often ask, from the basic structure of bonds to interest rates, credit ratings and duration, the base rate and the yield curve, exchange rates and currency risk, and the bond side of mezzanine bonds. It is provided for general information and is not a recommendation to invest in any particular product.
QWhat is a bond? Please explain simply.
A bond is a debt security issued by a government, local government, company or other entity when it borrows money, promising when and how it will repay the principal and interest. An investor who buys a bond becomes a creditor who has lent money to the issuer, receiving interest (coupons) at set times and getting the principal back at maturity. Bonds can also be bought and sold in the market before maturity, so their prices can change every day.
QHow do bonds differ from stocks?
A stockholder, as a shareholder of the company, has a certain ownership stake, whereas a bondholder is merely a creditor who has lent money and has no ownership. Most bonds have a fixed maturity, like a bank time deposit, whereas stocks can exist indefinitely with no maturity. Accordingly, bond investors expect the agreed interest and principal, while stock investors expect dividends and gains or losses from share price movements.
QIs the principal of a bond guaranteed like a deposit?
No. Unlike deposits and savings accounts, bonds are not covered by deposit insurance, so if the issuer goes bankrupt you may not get your principal and interest back. Also, if you sell before maturity, you may receive less than your principal depending on the market price at that time. Before investing, it is a good idea to check both the issuer's creditworthiness and the product's risk grade.
QWhat kind of bond is a government bond?
A government bond is a bond issued by the State, through National Assembly resolution and approval procedures, to raise funds for public purposes. The repayment period and interest rate are set at issuance, and the face amount is repaid at maturity. Because it is money lent to the State, it is considered a relatively safe investment, but since it trades in the market after issuance, its price keeps changing with interest rates.
QWhat is a corporate bond and how is it issued?
A corporate bond is a bond issued by a private company, promising payment of principal and interest, to raise relatively long-term funds for needs such as capital investment. When it is issued publicly, it is underwritten by a securities firm or similar institution, and a securities registration statement must be filed to protect investors; when it is issued privately, the issuer negotiates the terms directly with the buyers. The issue rate is usually set by adding a credit-based spread to the yield on Korea Treasury Bonds of the same maturity.
QWhat types of bonds are there by issuer?
By issuer, bonds are divided into government bonds issued by the State, municipal bonds issued by local governments, special bonds, Monetary Stabilization Bonds, financial bonds issued by financial companies, corporate bonds issued by ordinary companies, foreign bonds and so on. Even among bonds, interest rates and risk levels vary with the issuer's creditworthiness. Bonds are also classified in various other ways, such as by interest payment method, repayment period and whether they are guaranteed.
QHow do coupon bonds and discount bonds differ?
A coupon bond carries coupons stating the interest amount and pays interest at set intervals. A discount bond is issued at a price below face value by the amount of the interest and repays the face value at maturity. Because a discount bond has only one cash flow, at maturity, its price is more sensitive to interest rate changes than that of a coupon bond with the same maturity.
QWhat do a bond's face value and coupon rate mean?
Face value (nominal value) is the principal stated on the bond; it is the basis on which the issuer calculates interest and the amount repaid at maturity. The coupon rate is the interest rate the issuer has promised to pay, based on face value. The price at which a bond trades in the market may differ from its face value, so your actual investment return depends on the purchase price.
QHow do you earn returns from investing in bonds?
Returns on bond investments consist of interest income received regularly and capital gains or losses arising from the difference between the buying and selling prices. If you hold to maturity, you receive the principal and interest, but if you sell earlier, your gain or loss depends on the price at that time. You should also consider that high inflation reduces the real purchasing power of the interest you receive.
QWhy do bond prices fall when interest rates rise?
When market interest rates rise, newly issued bonds pay higher interest, so bonds already issued at lower rates become less attractive and their prices fall. Conversely, when rates fall, the relative value of existing bonds rises and their prices go up. That is why bond prices and market interest rates move in opposite directions.
QDo longer-maturity bonds have bigger price swings?
Generally, the longer the remaining maturity, the more the price moves for the same change in interest rates. According to an FSS example, when market rates rise by 1 percentage point, a bond with a 3% coupon could fall about 8.1% if it has 10 years remaining and about 17.3% if it has 30 years remaining. Even bonds with low credit risk, such as government bonds, can produce losses from interest rate changes if sold before maturity.
QIf I hold to maturity, does it matter if rates rise?
If the issuer repays principal and interest as scheduled, holding to maturity generally secures the yield calculated at the time of purchase. However, if you suddenly need money and sell partway through, you may incur a loss depending on the price at that time, and you also miss the opportunity to buy bonds paying the now-higher rates. That is why it is important to match the bond's remaining maturity to when you will need the money.
QWhat is duration?
Duration is the maturity weighted by the present value of the bond's interest and principal cash flows, representing the average period over which you recover your investment. It is also used as a measure of how sensitively the bond's price moves when interest rates change. A discount bond, which pays cash only once at maturity, has a duration equal to its maturity, while a coupon bond, which pays interest along the way, has a duration shorter than its maturity.
QHow do you estimate bond price changes using duration?
Modified duration indicates roughly what percentage a bond's price changes when interest rates change by 1 percentage point. For example, for a bond with a modified duration of 5, you can approximate that its price will fall about 5% if rates rise by 1 percentage point. Modified duration is obtained by dividing Macaulay duration by (1 + yield to maturity).
QWhich bonds have longer durations?
Duration is determined by maturity, coupon rate and the market interest rate (discount rate). The longer the maturity, the longer the duration; the higher the coupon rate, the more money is recovered early, so the duration is shorter. The higher the market interest rate, the smaller the weight of distant future cash flows, so the duration is shorter.
QWhat is bond convexity?
Convexity refers to the degree to which a bond's price response to interest rate changes follows a curve rather than a straight line, and it is defined as the second derivative of price with respect to the interest rate. Duration approximates this relationship as a straight line, so the more curved the price curve, the less accurate price changes calculated with duration alone become. That is why convexity is also taken into account when estimating price changes for large interest rate moves.
QWhat is yield to maturity (YTM)?
Yield to maturity is the average annual return you can expect if you buy a bond at its current price, hold it to maturity, and reinvest the interest received along the way. It is also defined as the discount rate that makes the present value of all the bond's future cash flows equal to its current purchase price. The bond rate or trading yield quoted in the market usually refers to yield to maturity, which is distinct from the coupon rate used to calculate interest payments.
QWhat does a bond's credit rating mean?
A credit rating is a letter grade expressing a credit rating agency's assessment of a bond issuer's ability to repay principal and interest. A lower rating reflects the agency's opinion that the likelihood of default is relatively high. Because credit ratings are opinions reflecting the agency's judgment and experience, it is best not to treat them as an absolute guarantee of safety.
QHow are credit ratings like AAA and BBB classified?
For long-term credit ratings, AAA is the highest, followed in descending order by AA, A, BBB, BB, B, CCC, CC, C and D, with + and - used for finer gradations within the same grade. Generally, BBB- and above is classified as investment grade and BB+ and below as speculative grade. D indicates default, and short-term ratings are expressed separately as A1, A2, A3, B and so on.
QDoes a high credit rating mean a low product risk grade?
Not necessarily. A credit rating assesses the issuer's ability to repay principal and interest, whereas the product risk grade assigned by the distributor also takes into account factors such as ease of redemption and the complexity of the product's structure. As in an FSS example, contingent capital securities with a credit rating of AA- can still be classified as high risk in terms of product risk grade, so check both.
QWhat is a credit spread and why does it matter?
A credit spread is the difference between the yield on Korea Treasury Bonds of the same maturity and the yield on a particular bond, and it indicates the level of that bond's credit risk. If the spread widens while Treasury yields are unchanged, it means the market sees a higher risk of default for that sector or issuer; if it narrows, the opposite. In particular, spreads on lower-grade corporate bonds are used as a key indicator of whether funds are flowing smoothly to companies.
QWhat are high-yield bonds?
High-yield bonds are bonds rated below investment grade (speculative grade) by credit rating agencies; they carry a higher risk of default but offer higher yields than investment-grade bonds. When the economy worsens, issuers' likelihood of default tends to increase. Rather than looking only at the high interest, consider the issuer's ability to repay and your own risk tolerance as well.
QHow do subordinated bonds and contingent capital securities differ from ordinary bonds?
Subordinated bonds are repaid after ordinary (senior) bonds if the issuer goes bankrupt, and in return pay higher interest. Contingent capital securities may be written off or converted into shares if certain events occur, such as the issuer being designated an insolvent financial institution, so you may not receive principal and interest. Even if the credit rating looks high, be sure to check the repayment priority and the write-off and conversion conditions in the prospectus.
QHow does commercial paper (CP) differ from corporate bonds?
Commercial paper (CP) is a security issued by a company in the form of a promissory note to raise short-term funds, usually with a maturity of 1 year or less. Its issuance procedure is simpler than that of corporate bonds, but because it is usually issued unsecured, you may not get your principal back if the issuer defaults. In the past, CP of distressed companies has been sold in large quantities to individual investors, causing losses, so it is important to check the credit rating and financial condition.
QHow do over-the-counter bonds and exchange-traded bonds differ?
Exchange-traded bonds are listed on the exchange, and their prices are determined by quotes, whereas for over-the-counter (OTC) bonds the securities firm acts as the counterparty and quotes a price that reflects its funding costs and other factors. As a result, OTC prices for the same bond may differ from firm to firm, and you can sometimes buy at a lower price on the exchange. However, exchange-traded bonds may be hard to trade when you want if there are not enough quotes.
QWhat is the private valuation yield, and why should I check it when buying bonds?
The private valuation yield is the yield calculated by private bond valuation companies according to credit rating and other factors, and it is widely used as a reference for judging whether a bond's price is appropriate. When you buy OTC bonds, the seller usually quotes a purchase yield lower than the private valuation yield (i.e., a higher price), taking into account costs such as personnel and IT. A difference that looks like a valuation loss right after you buy may be due to transaction costs, so compare the private valuation yield with your purchase yield.
QWhere can I compare whether an OTC bond's price is reasonable?
At the Korea Financial Investment Association's Bond Information Service (kofiabond.or.kr), you can check mark-to-market benchmark yields by credit rating and remaining maturity and compare the yield with bonds of the same profile. Prices of exchange-traded bonds can be viewed on securities firms' MTS and HTS (mobile and home trading systems) or on the Korea Exchange's information data system. Prospectuses and credit rating reports are available on the Korea Securities Depository's SEIBRO and the Financial Supervisory Service's electronic disclosure system (DART).
QIf I want to sell a bond before maturity, can I sell it at any time?
Not always. Depending on the financial company, an early sale service may not be offered for bonds bought over the counter, and even where it is, an unfavorable price may be set depending on trading conditions and market interest rates. It is best to match your investment period to the remaining maturity so that you do not put money you will need in the short term into long-term bonds.
QWhat is the base rate?
The base rate is the interest rate at the center of a country's interest rate system, set by the central bank after comprehensively considering prices, employment, growth, financial market conditions and so on. When the base rate changes, short-term market interest rates move first, and it can then affect government bond yields, exchange rates, the stock market, and deposit and lending rates. However, actual market reactions depend on factors such as the inflation outlook and the central bank's signals about the future.
Source: Wikipedia (Korean): Base rate
QWho sets Korea's base rate, and how often?
Korea's base rate is set 8 times a year by the Monetary Policy Board of the Bank of Korea. With price stability as its goal, the Monetary Policy Board comprehensively considers price trends, domestic and overseas economic conditions, financial market conditions and so on. The base rate it sets is used as the policy rate that serves as the reference when the Bank of Korea conducts transactions such as repurchase agreement (RP) trading with financial institutions.
QWhat effects does a base rate hike have on the economy and markets?
In theory, raising the base rate reduces the money supply, which helps cool an overheated economy, and market interest rates generally rise as well. It is explained that share prices may fall and the exchange rate may decline at such times, and that the opposite may occur when the rate is cut. However, these are theoretical effects, and the real economy may show entirely different patterns.
QThe base rate was cut, so why did my bond's price fall?
Bond prices are determined by market interest rates, not the base rate, and market rates sometimes move in a different direction from the base rate. According to FSS materials, there were periods in 2025 when the yield on 30-year Korea Treasury Bonds actually rose while the base rate was being cut or held. Rather than relying solely on the claim that 'bonds make money when the base rate falls', you should also consider the risk of price fluctuations.
QWhat is a yield curve?
A yield curve is a curve connecting the yields of bonds with similar characteristics, such as creditworthiness, across maturities, showing the relationship between yield and maturity. Analysts summarize the slope of the curve with long-short spreads, such as the difference between 10-year and 3-month yields. The shape of the curve is interpreted as reflecting how the market expects interest rates and the economy to evolve.
Source: Wikipedia (English): Yield curve
QWhat does it mean when short- and long-term rates are inverted?
When short-term bond yields are higher than long-term bond yields, this is called an inverted yield curve, or an inversion of long- and short-term rates. Normally, the shorter the maturity, the lower the yield, but it is explained that such inversions can occur when investors expect an economic slowdown and rate cuts. Inversions are often cited as a leading indicator of past recessions, but there have also been cases where no recession followed, so it is hard to judge on that basis alone.
QIf I think rates will fall, should I buy long-term bonds?
If you invest in long-term bonds expecting rates to fall, the price gain can be large if you are right, but losses can also be large if you are wrong. The Financial Supervisory Service notes that even market experts find it hard to predict long-term interest rate trends accurately, and that sellers usually make recommendations based on short-term outlooks of around 1 year. Rather than focusing on rate forecasts, first consider when you will need the money and how large a loss you can tolerate.
QWhat are ladder and barbell bond strategies?
A ladder strategy spreads bond holdings evenly across multiple maturities, aiming to secure liquidity as bonds mature in turn and to diversify interest rate risk. A barbell strategy holds only short-term and long-term bonds and no medium-term bonds, seeking both the liquidity of short-term bonds and the returns of long-term bonds. With a barbell, long-term bonds that have become medium-term must be replaced periodically, which makes management cumbersome and can incur transaction costs.
QCan I lose money on overseas bonds because of exchange rates?
Yes. Because overseas bonds pay principal and interest in foreign currency, even if you make a profit in foreign currency terms, you can incur a loss if the exchange rate has fallen when you convert back into won. The Financial Supervisory Service has cited a case in which an investor bought Brazilian government bonds paying 10% annual interest but suffered a loss in won terms because of the fall in the Brazilian real. You should also look at factors that affect exchange rates, such as the economic situation of the issuing country.
QDoes a rising exchange rate mean the won is losing value?
Under the convention of quoting the exchange rate as the amount of won per unit of foreign currency (direct quotation), a rise in the exchange rate means a fall in the value of the won, i.e., a rise in the value of the foreign currency. For example, when the won/dollar exchange rate rises, more won is needed to buy 1 dollar. Conversely, under the convention of quoting the amount of foreign currency per unit of domestic currency, the meaning is reversed, so it is a good idea to check which convention is being used.
QWhat moves exchange rates?
In the long run, a representative explanation is purchasing power parity (PPP) theory, which holds that the difference in price levels between two countries is reflected in the exchange rate. In the short run, prices change little while exchange rates fluctuate widely, so movements are explained by asset market factors such as expected returns on domestic and foreign assets and capital flows. Because many factors act together, it is hard to predict exchange rates accurately.
QHow can I tell currency-hedged products from unhedged products?
Funds that invest in overseas stocks and bonds gain or lose not only from asset prices but also from exchange rate movements, and there are currency-hedged products that reduce exchange rate risk. According to the Financial Supervisory Service, currency-hedged products are often marked (H) in the product name, and unhedged products (UH). If there is no such marking, check whether the product is hedged in the product description.
QDoes currency hedging eliminate exchange rate risk completely?
No. Currency hedging does not eliminate all exchange rate risk, and gains or losses may remain depending on the hedge ratio and market conditions. When recommending overseas asset funds, sellers are required to explain whether the fund is hedged, the target hedge ratio, the currencies covered and the main hedging instruments, so be sure to check these. If you hedge on your own, you may incur losses if you do not adjust the hedge ratio in a timely manner.
Source: BNB Asset Management Investment Solicitation Guidelines (amended 2024-04-26), Article 15
QAre products invested in foreign currency given higher risk grades?
Under the criteria for determining the risk grade of investment products, products invested in foreign currency, such as foreign-currency-denominated funds and overseas bonds, in principle have their overall risk grade raised by 1 grade to account for exchange rate risk. If the currency is extremely volatile, the grade may be raised by up to 2 grades, and if currency hedging has substantially reduced the exchange rate impact, it may not be raised. This means the same asset can carry a different level of risk depending on the currency and whether it is hedged.
QWhat are the bond characteristics of mezzanine bonds?
Mezzanine securities such as convertible bonds (CBs) are corporate bonds with interest and a maturity at the time of issuance, but they also carry a right to convert into shares after a certain period. If the share price rises, you can convert to seek a capital gain; if not, you can hold them as bonds to maturity and receive the agreed return. However, the bond portion ultimately depends on the issuer's ability to repay, so credit risk cannot be avoided.
Source: Bank of Korea Economic Glossary: Convertible Bond (CB)
QWhat is the 'guaranteed yield to maturity' of a convertible bond (CB)?
The guaranteed yield to maturity is the yield the issuer has agreed to pay if you hold the bond to maturity without exercising the conversion right. Because convertible bonds carry the benefit of a right to convert into shares, their guaranteed yield to maturity tends to be lower than that of ordinary corporate bonds, allowing the issuer to raise funds at correspondingly lower cost. Despite the word 'guaranteed', as with ordinary bonds, you cannot receive it if the issuer fails to repay.
Source: Bank of Korea Economic Glossary: Convertible Bond (CB)
QHow do bonds with warrants (BWs) and convertible bonds (CBs) differ as bonds?
With a convertible bond, exercising the conversion right turns the bond into shares, and the bond is extinguished. With a bond with warrants, exercising the right to buy new shares (the warrant) extinguishes only the warrant portion; the bond itself remains outstanding and in effect until maturity. As a result, BW investors can expect both bond interest and gains from a rise in the share price, but they also continue to bear the issuer's credit risk until maturity.
Source: Bank of Korea Economic Glossary: Bond with Warrants (BW)
QWhat is an exchangeable bond (EB)?
An exchangeable bond carries the right for the bondholder, if they wish, to exchange it for securities held by the issuer, such as shares of another company. When an exchange takes place, both the issuer's assets (the shares it holds) and liabilities (the bonds) decrease, and it differs from a convertible bond in that no new shares are issued. It is also distinguished from a bond with warrants in that no new money comes in.
Source: Bank of Korea Economic Glossary: Exchangeable Bond (EB)
QWhat is the early redemption right (put option) on mezzanine securities?
The early redemption right is the investor's right to demand that the issuer redeem the bond early at agreed times before maturity, and it is commonly attached to mezzanine securities such as convertible bonds. The exercise times are set in advance, for example 'exercisable at set intervals from 1 year after the issue date', and it can serve as a way to recover principal and interest early when the share price is below the conversion price and conversion offers no benefit. Whether the right had been exercised has even been at issue in an FSS dispute mediation case, so look at both the exercise times and the issuer's ability to repay.
QWhen can convertible bonds issued by a listed company be converted into shares?
Under the Regulations on Securities Issuance and Disclosure, etc., convertible bonds of stock-listed corporations must in principle be issued on terms that allow conversion only after 1 year has passed from issuance. However, if they are issued through a public offering, they may be made convertible from 1 month after issuance. For the exact conversion request period of an individual bond, check the issuance disclosure and the terms of the bond.
QWhat does an adjustment of the conversion price (refixing) mean for bond investors?
Refixing is a term under which the conversion price is lowered when the share price falls, allowing convertible bond investors to receive more shares for the same bond. On the other hand, because it can increase dilution for existing shareholders, lowering it below 70% of the initial conversion price is in principle prohibited (with exceptions where provided for in the articles of incorporation, etc.). The Financial Supervisory Service has investigated cases in which such terms in privately placed convertible bonds were abused for unfair trading, so check the issuance terms and disclosures carefully.
QIs a CoCo bond (contingent capital security) the same as a convertible bond?
No. A CoCo bond is a bond that is forcibly written off or converted into common shares when predetermined conditions occur, such as the issuing financial institution receiving a management improvement order or being designated an insolvent financial institution. Unlike convertible bonds, which investors choose to convert when it is to their advantage, CoCo bonds can cause losses regardless of the investor's wishes if the issuer runs into difficulty. Reflecting this risk, their interest rates are set somewhat higher than those of ordinary corporate bonds.
Source: Bank of Korea Economic Glossary: Contingent Convertible Bond (CoCo Bond)
QIs it disadvantageous to redeem a maturity-matching bond fund early?
Maturity-matching funds, which are managed so that the maturities of the bonds held match the fund's maturity, may charge high redemption fees of around 3%-5% of the redemption amount on early redemption. This is because early redemptions force the fund to sell bonds hastily before maturity, which can cause losses for the remaining investors. Check in advance whether the maturity suits your investment period and what the redemption fee is.
QIs a derivative-linked bond (ELB) a safe, principal-guaranteed bond?
Many ELBs are designed to pay back principal and interest, but they are not covered by deposit insurance, and the money invested is not deposited separately from the issuing securities firm's own assets. Therefore, if the issuing securities firm goes bankrupt, there is a risk that you will not get your principal and returns back. Even if the underlying asset is the share price of a blue-chip company, keep in mind that repayment of principal and interest depends on the issuer's ability to pay.
10
Asset Allocation & Risk
This section summarizes diversification and asset allocation, rebalancing, risk measures such as volatility, maximum drawdown and the Sharpe ratio, market, credit and liquidity risk, investment profiles and risk grades, and the psychological traps investors commonly fall into. It explains general concepts and does not recommend any particular product or investment strategy.
QWhy are investors told to diversify?
Diversification is a way of reducing exposure to any particular asset or risk by spreading your investment across multiple assets. Unless asset prices move in exactly the same way, a portfolio that mixes several assets often has lower overall volatility than the individual assets. As the saying 'don't put all your eggs in one basket' suggests, the aim is to reduce the impact that a sharp fall in one asset has on your overall wealth.
QDoesn't diversification lower returns?
A diversified portfolio's return is lower than if you had invested only in the single best-performing asset, but higher than if you had invested only in the worst. Since you cannot know in advance which asset will do best, diversification narrows the range of possible outcomes and helps you avoid extreme ones. In other words, diversification does not necessarily raise or lower expected returns; it is a way of reducing the dispersion of outcomes.
QHow many stocks do I need to hold to be diversified?
There is no fixed number of stocks at which a portfolio counts as diversified. Around 30 is often mentioned, but fewer may suffice if chosen carefully, and one study reported that most of the benefit of diversification comes from the first 15 to 20 stocks. How varied your holdings are in terms of industry, company size and asset type matters more than the number of stocks.
QWhy is it important to mix assets that move differently?
Asset allocation rests on the fact that returns on different asset classes do not move in perfect lockstep, and the more you combine assets with low correlation, the more you can reduce overall volatility for the same expected return. However, correlations between assets can change over time. There is no guarantee that diversification benefits based on past correlations will continue in the future.
QWhat is asset allocation?
Asset allocation is a strategy of adjusting the weightings of asset classes such as stocks, bonds and cash to match the investor's risk tolerance, investment goals and investment horizon. It is characterized by a focus on the characteristics of the portfolio as a whole rather than on individual securities. Many experts regard asset allocation as an important determinant of investment performance.
QDoes diversification prevent losses?
No. Diversification can reduce a portfolio's volatility, but it cannot eliminate the risk of the market as a whole falling or guarantee a positive return. In a crisis, assets that normally move differently may fall together, so it is best not to overestimate the benefits of diversification.
QWhat is modern portfolio theory?
Modern portfolio theory, proposed by Harry Markowitz in 1952, is an analytical framework for finding the combination of assets that maximizes expected return for a given level of risk. It evaluates each asset not on its own but by its effect on the risk and return of the portfolio as a whole, and it uses the variance (standard deviation) of returns as the measure of risk. Markowitz received the Nobel Prize in Economics in 1990 for this contribution.
QWhat is the efficient frontier?
The dominance principle holds that a portfolio with a higher expected return for the same risk, or lower risk for the same expected return, is better than other portfolios. Under this principle, the line connecting the best portfolios, none of which is superior to another, is the efficient frontier. Investors are described as choosing the combination on this line that matches their risk preference.
QHow do systematic and unsystematic risk differ?
Unsystematic risk is risk specific to a particular company or industry, and it can be substantially reduced by diversifying across many stocks. Systematic risk affects the market as a whole, as with the business cycle and interest rates, so it cannot be eliminated even by diversification. The capital asset pricing model (CAPM) explains that the reward for risk is determined in proportion to systematic risk (beta), not total risk.
QWhat does beta (β) mean?
Beta is a measure of how much an individual asset's price rises and falls in proportion to movements in the market as a whole, indicating systematic (market) risk that cannot be eliminated by diversification. A beta greater than 1 is interpreted as tending to move more than the market, and a beta less than 1 as tending to move less. Beta does not measure the risk specific to an individual company, and because it is calculated from past data, there is no guarantee that it will hold in the future.
QWhat is alpha (α) in fund performance?
Alpha measures active performance, i.e., the return achieved above an appropriate benchmark index. For example, an alpha of 1% means the investment returned 1 percentage point more than the beta-adjusted market return over the same period, and a negative alpha means it returned less. A fund that charges fees must generate alpha greater than its fees to outperform an index fund.
QWhat is the Sharpe ratio and how is it interpreted?
The Sharpe ratio is the excess return over the risk-free rate or a benchmark divided by the standard deviation of returns, showing how much reward was earned per unit of risk. When two investments are compared on the same basis, the one with the higher Sharpe ratio can be interpreted as having earned a higher return for the same risk. However, if the return data used in the calculation are inaccurate or smoothed, the ratio may look better than it really is.
Source: Wikipedia (Korean): Sharpe ratio
QHow does the Sortino ratio differ from the Sharpe ratio?
The Sortino ratio is a risk-adjusted performance measure that modifies the Sharpe ratio. The Sharpe ratio treats upward and downward volatility equally as risk, whereas the Sortino ratio counts only downside returns that fall short of a target return as risk. As a result, the two measures can lead to different conclusions even when evaluating the same investment.
QWhat is volatility and how is it measured?
Volatility is the degree to which prices have risen and fallen over a given period, usually measured by the standard deviation of returns. There is historical volatility, calculated from past prices, and implied volatility, the market's expected volatility as reflected in option prices. High volatility means that both large gains and large losses can occur within a short period.
QWhat is maximum drawdown (MDD)?
A drawdown shows how far an asset's value has fallen from its previous peak, and the maximum drawdown (MDD) is the largest such fall over a given period. For example, if an account that had risen to KRW 100 million fell to KRW 70 million, the drawdown is 30%. Because it shows the worst decline that could actually have been experienced, it is used together with volatility to gauge the level of loss you can tolerate.
QWhat is VaR (Value at Risk)?
VaR is a statistical estimate of the size of the loss that could occur over a given period at a given confidence level. For example, the criteria for determining the risk grade of investment products require funds that are more than 3 years past their establishment to be assigned one of 6 market risk grades based on a 97.5% VaR calculated from daily returns over the past 3 years. Because it is based on historical data, it may underestimate losses in extreme situations.
QWhat is tail risk?
Tail risk is the risk of extreme events that are unlikely to occur but cause large losses when they do. Many financial models assume that returns follow a normal distribution, but actual market returns tend to show 'fat tails', with extreme events occurring more often than such a distribution implies. Tail risk cannot be eliminated, but diversifying broadly across assets and strategies can soften the blow somewhat.
Source: Wikipedia (English): Tail risk
QWhat is rebalancing?
Rebalancing means bringing a portfolio that has drifted from its target weightings because of market movements back to the originally planned asset allocation. It can be done by selling some of the assets whose weight has grown and buying those whose weight has shrunk, or by allocating new money to the underweight assets. The goal is not to chase returns but to maintain the level of risk you originally set.
QWhat happens if I don't rebalance and just leave my portfolio alone?
Over time, the weight of assets that have risen a lot grows, and the portfolio may become more aggressive than originally intended or, conversely, more conservative. If a sharp short-term fall hits when risk has grown excessive, investors are prone to the mistake of selling at the bottom. Conversely, if the portfolio becomes too conservative, long-term returns may be lower than expected.
QWhat are the effects of regular (installment) investing?
Investing a fixed amount at regular intervals means you buy more units when prices are low and fewer when prices are high, which can be expected to lower your average purchase cost. Because you do not have to agonize over timing each time, it helps build a steady investing habit. However, it does not guarantee returns, since losses cannot be avoided if the market keeps falling.
QDoes 'market timing' (buying low and selling high) work?
Market timing is a strategy of deciding when to buy and sell by predicting the future direction of the market as a whole, but many point out that short-term stock market returns are almost impossible to predict. Some analyses also suggest that 'return-chasing' behavior, buying funds with high past returns and selling those with low returns, can actually hurt performance. You should also consider that frequent trading increases costs.
QWhat is the 'buy and hold' approach?
Buy and hold is a strategy of buying assets and holding them for a long period despite price fluctuations, in the expectation that their value will rise; it is an example of passive management. Its commonly cited advantage is that making fewer trades can reduce trading costs and the tax burden. However, it presupposes a judgment that the assets held will rise in value over the long term, so what you hold still matters.
QHow do passive and active investing differ?
Active management is an approach in which the investor selects securities or assets directly in pursuit of returns higher than the market's, using fundamental analysis, quantitative analysis and the like. Passive management follows a market index, as in index investing. Some analyses show that passive management has consistently outperformed active management over the long term, so it is a good idea to compare costs alongside your investment objectives.
QWhat does the efficient market hypothesis mean for investing?
The efficient market hypothesis is the theory that asset prices reflect all available information, making it hard to beat the market return consistently while taking the same risk. It is divided into weak, semi-strong and strong forms according to how much information is reflected, and the semi-strong form, which holds that public information is immediately reflected in prices, is considered the most realistic. Behavioral economists, on the other hand, argue that markets are not fully efficient because of cognitive biases such as overconfidence.
QWhat is market risk?
Market risk is the risk of losses on the assets you hold due to movements in market variables such as share prices, interest rates, exchange rates and commodity prices. Equity risk, interest rate risk, currency risk and commodity risk are typical types. Because it affects the market as a whole, it is hard to avoid completely even by spreading your money across many stocks.
Source: Wikipedia (English): Market risk
QWhat is credit risk?
Credit risk is the risk of loss because the creditworthiness of a counterparty you have lent money to, or of a bond issuer, deteriorates or it defaults. Even short of default, losses from a fall in the value of assets such as bonds due to declining creditworthiness are included in credit risk in the broad sense. Financial institutions manage it as one of the main financial risks, along with market risk, liquidity risk and operational risk.
Source: Wikipedia (Korean): Credit risk
QWhat is liquidity risk?
Liquidity risk is the risk of being unable to sell or redeem an asset in time and at a fair price when you need to. The criteria for investment product risk grades require liquidity risk to be stated in the product description in 3 levels, according to whether early redemption is possible and at what cost: 'early redemption not possible', 'costs incurred on early redemption' and 'early redemption permitted'. Even if a product's structure places no restrictions on redemption, liquidity risk can increase if there is no market in which to trade it or trading is thin.
QWhat is interest rate risk?
Interest rate risk is the risk that the value of assets or returns will be affected by changes in interest rates or in their volatility. A typical example is that bonds already held fall in price when interest rates rise. Changes in interest rates can work for or against investors, so it is a good idea to know how sensitive your assets are to interest rates.
QDo leveraged products concentrated in a single stock offer the benefits of diversification?
No. The Financial Supervisory Service warns that single-stock leveraged and inverse products are not 'diversified investment' products. Losses can double in a single day, and when prices repeatedly rise and fall, a 'negative compounding effect' can make returns lower than expected. A 2026 consumer alert also cited cases in which the maximum drawdown of such products reached the 30% range while the underlying asset was falling.
QWhat factors determine a product's risk grade?
The risk grade of investment products (a system of at least 6 levels, with grade 1 being the riskiest) is determined by considering the volatility of the underlying assets, credit rating, complexity of the product structure, maximum possible loss of principal, ease of redemption or trading, exchange rate volatility and so on. Market risk and credit risk are assessed separately to determine an overall grade, and as a rule, foreign currency products have their grade raised to reflect exchange rate risk. High-complexity financial investment products in principle cannot be rated less risky than grade 2, regardless of the calculation result.
QHow are risk grades assigned to private funds?
If a private fund can be assessed using objective data, its market risk is calculated in the same way as for public funds. If it is difficult to assess on the same basis, the distributor may set the grade using separate criteria that take into account factors such as the product structure, and in this case, grade 2 (high risk) or a riskier grade is in principle assigned. When investing in a private fund, be sure to check not only the grade but also any redemption restrictions and the characteristics of the investment targets.
QHow are investment profiles classified?
Investment profiles are usually classified into 5 types: stable, stability-seeking, risk-neutral, active and aggressive. The stable type expects returns at the level of deposits and savings and does not want any loss of principal, while types closer to the aggressive end are willing to accept the possibility of large losses in pursuit of higher returns. Financial companies must match the identified investment profile with the product's risk grade and recommend only suitable products.
Source: BNB Asset Management Investment Solicitation Guidelines (amended 2024-04-26)
QWhat does the investment profile assessment ask about?
It typically asks about investment experience, level of financial knowledge, annual income and total assets, the proportion of financial assets to total assets, investment objectives, attitude toward investment risk, intended investment period, age and so on. For corporations, the length of business history, equity capital, net income and similar items are also checked. Because the range of products that can be recommended to you depends on your answers, it is important to answer truthfully and accurately.
Source: BNB Asset Management Investment Solicitation Guidelines (amended 2024-04-26)
QIf I do not want any loss of principal at all, can I sign a discretionary investment or advisory contract?
BNB Asset Management's Investment Solicitation Guidelines provide that a contract cannot be concluded if, in the question on capacity to bear investment risk, the investor answers that 'the principal must be preserved no matter what'. This is because the assets covered by discretionary investment and advisory contracts can lose principal. If preserving principal is your most important goal, first check whether your investment objectives match the characteristics of the product.
Source: BNB Asset Management Investment Solicitation Guidelines (amended 2024-04-26)
QOnce my investment profile has been assessed, does it never change?
No. Investor information has a validity period and must be reassessed when it expires, and the assessment result may change if your financial situation or investment objectives change. BNB Asset Management's Investment Solicitation Guidelines require the firm to check at least once a year whether the financial situation and investment objectives of discretionary investment clients have changed, and to send a notice at least once every quarter asking clients to report any changes. If you answer untruthfully in order to buy a product you want, you may end up bearing risks that do not suit you.
Source: BNB Asset Management Investment Solicitation Guidelines (amended 2024-04-26)
QWhat happens if I want to invest in a product riskier than my investment profile?
Under BNB Asset Management's Investment Solicitation Guidelines, officers and employees may not recommend products that are unsuitable for the investor. If an investor, without any recommendation, applies on their own for a product riskier than their investment profile, the sales process may proceed after a confirmation form containing a 'confirmation of a transaction in an investment product unsuitable for the investment profile' is obtained. In this case, you will be informed that the suitability principle does not apply and that there is a risk of greater losses, so decide carefully.
QWhat is behavioral finance?
Behavioral finance is a field that studies how investor psychology affects investment behavior and markets, on the view that investors are not always rational, have limited self-control and are influenced by various biases. It explains why market participants repeatedly make systematic errors of judgment and how these errors affect prices and returns. Knowing these biases helps reduce emotional trading.
QWhat is loss aversion?
Loss aversion is the tendency to feel a situation far more strongly when it is perceived as a loss than as a gain; empirical studies have found that people feel losses about twice as strongly as gains of the same size. The concept was presented by Daniel Kahneman and Amos Tversky in prospect theory. Because of this tendency, judgment may become clouded in an effort to avoid realizing losses, or people may make overly conservative choices.
QAre loss aversion and risk aversion the same thing?
No. Risk aversion is a rational tendency to value an uncertain outcome below its expected value, i.e., the attitude of choosing the less risky option when expected returns are the same. Loss aversion is a cognitive bias in which the same situation feels worse when framed as a loss, and it is distinguished by the fact that it can lead to errors of judgment. Risk aversion is a personal characteristic that should be reflected in the investment profile assessment, whereas loss aversion is closer to a psychological trap to be wary of.
QIs it also a bias when the stocks I own seem better?
Yes. The endowment effect is the psychological phenomenon of valuing an item or asset more highly when you own it than when you do not, so that giving it up feels like a loss. In investing, it can show up as magnifying the merits of the stocks you hold and putting off an objective reassessment. It helps to ask yourself whether you would buy the same asset if you were buying it fresh today.
QIf I invest in installments, can I be recommended products riskier than my investment profile?
BNB Asset Management's Investment Solicitation Guidelines provide that where the risks of an investment are judged to be reducible, such as when the investor invests to hedge the risk of assets they hold or invests in installments, investment solicitation may be made applying criteria more lenient than the risk classification criteria for financial investment products. However, this is an exception limited to cases where risk is actually reduced, and the suitability principle itself does not disappear. Ask the sales staff to explain fully whether this applies and why.
QWhy do people sell rising stocks quickly and hold on to falling ones for a long time?
This is called the disposition effect, the tendency to sell assets that have gained too early and to hold assets that have lost value too long. It is explained as the combined result of wanting to avoid realizing losses, mental accounting that measures gains and losses against the purchase price, the desire to avoid regret, and self-control problems. Rather than using the purchase price as your yardstick, it is better to check whether the reasons for your investment are still valid now.
QWhy is overconfidence a problem in investing?
Overconfidence is the tendency to rate one's own information or judgment more highly than is warranted, and behavioral economics cites cognitive biases such as overconfidence as one reason markets are not fully efficient. Overconfident investors are prone to trading too often or concentrating on a few stocks, increasing their risk. It helps to remember that it is hard to beat the market return consistently for the same level of risk.
QHow does the anchoring effect show up in investing?
Anchoring is the phenomenon in which, just as a ship that has dropped anchor cannot move, your thinking becomes tied to the first number or information you encounter, which then influences later judgments. In investing, it can show up as judging that 'it will surely recover to that price', using a previous high or your purchase price as the reference point. You need to reassess based on current value and circumstances rather than past prices.
QWhat is mental accounting?
Mental accounting is the tendency to divide money into different mental accounts, valuing the same amount differently and spending or investing it differently as a result. In investing, it can show up as tallying gains and losses separately for each stock and losing sight of the portfolio as a whole. It helps to view all your assets as a single portfolio and manage its overall risk.
QHow does status quo bias affect investing?
Status quo bias is the tendency, driven by loss aversion and the endowment effect working together, to be reluctant to change the current state of affairs and to stick with existing choices. In investing, it can show up as leaving a portfolio unchecked and unadjusted even though circumstances have changed. Setting a rule to compare your portfolio regularly with your target asset allocation helps reduce this bias.
QIs it a problem to buy just because everyone else is buying?
Herd behavior, in which many people pile into trades in the same direction, has been identified as a factor that inflates price bubbles and crashes. Some analyses find that herd behavior and psychological vicious circles play an important role in stock market crashes. Rather than buying because others are, it is better to judge based on the risks of the investment and whether it fits your own investment objectives.
QShouldn't I just pick funds with high recent returns?
Some analyses suggest that 'return-chasing' behavior, in which money flows into funds with high past returns, can actually lower investment performance. This is because stock market returns are almost impossible to predict in the short term and tend to revert to their long-term averages. Remember that past performance does not guarantee future returns.
QWhat does compounding mean for long-term investing?
Compounding means earning returns not only on the principal but also on interest or returns already earned, and its effect grows the longer the period. Even at the same rate of return, reinvesting your returns and staying invested for a long time steadily widens the gap with simple interest. However, returns on investment assets are not constant from year to year and losses can occur, so the results of compound interest calculations should not be taken as a guarantee of returns.
QDoes long-term investing make risk disappear?
A long-term holding strategy can help you be less swayed by short-term price swings and reduce trading costs, but it does not eliminate risk itself. Long-term holding presupposes a judgment that the investment will be worth more in the future, so if that judgment is wrong, you can lose money even after holding for a long time. It is important to plan by considering not only your investment horizon but also when you will need the money and how large a loss you can tolerate.
QWhat is the relationship between risk and return?
Generally, expecting higher returns requires taking on greater risk; this is called the risk-return trade-off. Expected return and risk tend to increase together in the order of short-term debt, long-term debt, real estate, high-yield bonds and stocks, and the ranges of these asset classes can overlap. Conversely, if someone offers high returns with no risk, you should be suspicious first.
QBesides diversification, what other ways are there to reduce risk?
The two main ways to reduce investment risk are diversification and hedging. Diversification reduces the impact of particular risks by spreading investments across multiple assets, while hedging offsets a particular risk (e.g., exchange rate fluctuations) using means such as transactions that move in the opposite direction. Just as keeping many baskets can increase costs, both diversification and hedging come at a cost, and neither eliminates all risk.
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General financial information, not investment advice. Rules and tax rates change; please check the latest guidance from the source institution.
