Samsung Asset Management announced on the 22nd that it will list the ‘KODEX 1-Year Bank Negotiable Certificate of Deposit+ Active’ exchange-traded fund (ETF) on the 23rd, which provides ‘plus’ additional returns on top of the interest from 1-year bank negotiable certificates of deposit.
The ‘KODEX 1-Year Bank Negotiable Certificate of Deposit+ Active’ reflects the daily compounded returns of the 1-year CD daily interest rate, and unlike existing interest rate ETFs, it additionally pays a daily return equivalent to 0.5% per annum (annualized) when the KOSPI 200 index rises by more than 1% in a day.
Samsung Asset Management introduced the industry’s first loss-free interest rate and parking-type ETF by listing KODEX KOFR Interest Rate Active in April 2022. Since the interest of the underlying asset is calculated on a daily basis and compounded daily, it has a stable structure that generates returns every day. Investors can receive returns for the investment period even if they invest for just one day, without any restrictions on duration or amount. Both institutional and individual investors have actively purchased it, and the total net assets of interest rate and parking-type ETFs have grown to about KRW 26 trillion.
The ‘KODEX 1-Year Bank Negotiable Certificate of Deposit+ Active’ has taken the return structure of such interest rate ETFs to the next level. The underlying asset, the 1-year CD, generally offers a higher base interest rate than the existing 91-day CD and KOFR (Korea Overnight Financing Rate) due to its longer investment period. Additionally, if the KOSPI 200 index rises by more than 1% in a day, an extra daily return equivalent to 0.5% per annum is provided. This return structure is being attempted for the first time in interest rate ETFs. Since 2020, the KOSPI 200 index has risen by more than 1% on an average of 49 trading days per year, and considering the rise on trading days before holidays, the actual number of days with additional interest is about 70, making it possible to expect the highest returns among domestic interest rate ETFs.
The ‘KODEX 1-Year Bank Negotiable Certificate of Deposit+ Active’ is listed at KRW 1,000,000 per share to minimize the actual trading costs for investors. By offering buy and sell LP quotes closely aligned with the 5 KRW quoting unit, it aims to minimize the impact of actual buy and sell prices on investors’ returns.
As the expected returns of interest rate ETFs increase, Samsung Asset Management expects that ‘parking-type’ investment funds for short-term management purposes such as stock investment standby funds and pension withdrawal funds, as well as 1-year fixed deposit funds, can be sufficiently absorbed. While the 1-year CD interest rate is 3.55% per annum, the 1-year fixed deposit rates at commercial banks range from 3.0% to 3.60% per annum, and since additional returns can be added, the attractiveness of returns compared to 1-year fixed deposits is higher.
Moreover, while offering higher returns than 1-year bank fixed deposits, interest rate ETFs like the ‘KODEX 1-Year Bank Negotiable Certificate of Deposit+ Active’ have the advantage of allowing free buying and selling at any time, unlike fixed deposits that require penalties upon early termination.
In particular, it is possible to invest 100% not only through general stock trading accounts but also through retirement pension (DC·IRP) accounts, pension savings accounts, and brokerage-type ISA accounts. When investing through pension accounts and ISAs, investors can receive tax benefits such as tax credits, low tax rates, and tax exemptions.
Lee Jun-jae, manager at Samsung Asset Management, said, "Samsung Asset Management opened the door for individual investors to easily invest in the institutional short-term interest rate market, which can yield relatively high returns, by introducing parking-type ETFs using KOFR (risk-free benchmark interest rate). We attempted a new return structure that adds additional returns to the 1-year bank negotiable certificate of deposit interest rate to provide investors with higher returns."
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