SEOUL – Investment Management Accounts (IMA) are taking the South Korean financial market by storm as investors flock to products promising higher returns than traditional bank deposits while offering principal protection.
According to industry sources on December 27, Korea Investment & Securities' "Korea Investment IMA S1," launched on the 18th, attracted 1 trillion won in just four days. Similarly, Mirae Asset Securities’ "Mirae Asset IMA No. 1," released on the 22nd, was "fully sold out" after drawing approximately 500 billion won—five times its initial target.
The Appeal of High Returns and Stability
IMA is a government-initiated scheme designed to kill two birds with one stone: providing corporate financing and protecting financial consumers. Unlike general funds, securities firms guarantee the principal based on their own credit. The products are categorized into three types: Low-yield Stable (4–4.5% target), Medium-yield General (5–6%), and High-yield Investment (6–8%).
The primary driver behind this "frenzy" is the 4% base return rate, which surpasses current bank fixed-deposit rates. The capital raised is funneled into corporate loans, Mergers & Acquisitions (M&A) financing, and Business Development Companies (BDCs).
The "Hidden Costs": Performance Fees and Taxes
Despite the hype, experts warn that the effective return for investors may be lower than expected once fees and taxes are deducted. For instance, the Korea Investment IMA S1 applies a 40% performance fee on returns exceeding the 4% base rate.
"If an investor earns a 5% annual return, after deducting the performance fee and the 15.4% dividend income tax, the actual net return drops to approximately 3.89%," an industry analyst noted. This is notably lower than the headline figures that attract initial interest.
Liquidity Risks and "Tax Bombs"
Investors must also consider the rigid structure of IMAs. Most are "closed-end" products, meaning they cannot be redeemed before maturity (typically 2 to 3 years). Unlike bank deposits, they do not offer collateralized loans, locking up liquidity for the duration of the term.
Furthermore, because the total investment profit is paid out at maturity, investors face the risk of a "tax bomb." If the annual financial income exceeds 20 million won, it becomes subject to the Comprehensive Financial Income Tax, with rates ranging from 6% to 45%.
A Safety Net with Asterisks
Finally, while IMAs are marketed as "principal-protected," they are not covered by the Depositor Protection Act. The guarantee relies entirely on the issuing securities firm’s solvency. "If a brokerage faces bankruptcy, investors could still face losses," warned an investment specialist. "Investors should balance the allure of higher yields against the high fee structures and the lack of external insurance."
As securities firms prepare to launch mid-to-long-term IMA products with target returns exceeding 6% next year, the debate over tax benefits and "intermediate dividend" structures is expected to intensify.
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