[Real Investment] How About Stable Long-Term Investment with Government Bonds for Individual Investors?

Government Bonds for Individual Investors Launched Last Month
Suitable for Stable Investors Preparing for Retirement
Issued Monthly with 10- and 20-Year Maturity Options
Consider Receiving Interest and Principal in Lump Sum at Maturity

There is an investment product that offers additional interest rates upon maturity, compound annual interest, and separate taxation benefits, while also providing the stability guaranteed by the government. This is the individual investment government bond, which began sales in June of this year. Since individual investment government bonds were introduced by the government to support asset formation for individuals' retirement preparation, investors looking for a stable long-term investment product for retirement planning should take an interest.

Individual investment government bonds can only be purchased by individual investors and are issued monthly with 10-year and 20-year maturities. They can be purchased through subscription rather than market trading. The total issuance limit for this year is 1 trillion KRW, and subscriptions will be accepted monthly until November. Purchases can be made after opening a dedicated account (one account per person) at Mirae Asset Securities, the sole sales agency in the financial sector for individual investment government bonds. The minimum purchase unit is 100,000 KRW, and purchases can be increased in increments of 100,000 KRW. The annual purchase limit is 100 million KRW.

The first subscription was conducted last month, followed by the second sale on the 12th of this month.

According to Mirae Asset Securities, about 426.2 billion KRW in subscription amounts were gathered for the first issuance of 200 billion KRW in June. The subscription amount for the 10-year bonds was approximately 349.3 billion KRW, of which about 123.1 billion KRW was allocated. For the 20-year bonds, about 76.9 billion KRW in subscription amounts were fully allocated.

The total number of subscriptions recorded was 17,757. By age group, the main demand came from those in their 40s to 60s, accounting for 78% of the total number of subscriptions and 86% of the total subscription amount. For the 10-year bonds, those in their 50s and 60s accounted for 70% of the subscription amount, while for the 20-year bonds, those in their 40s and 50s showed the highest demand at 67%. It is characteristic that all prefer maturity repayment before reaching their 80s.

Another characteristic was some polarization in subscription amounts by range. Cases under 10 million KRW accounted for 60%, indicating many small-amount subscriptions. For subscriptions over 90 million KRW, the number of cases was 14%, but the subscription amount accounted for 58% of the total. Subscriptions between 30 million and 50 million KRW also accounted for 16% of the total subscription amount.

This month's subscription recorded a total of 14,424 cases (11,579 for 10-year bonds, 2,845 for 20-year bonds), with subscription amounts totaling approximately 291 billion KRW for 10-year bonds and about 29.7 billion KRW for 20-year bonds, summing to about 320.7 billion KRW.

The greatest advantage of individual investment government bonds is their stability. Government bonds are "bonds issued by the state," and since the government guarantees payment, they are among the most stable bond products. Additionally, upon maturity, compound interest is applied to both the nominal interest rate and the additional interest rate. The nominal interest rate is based on the previous month's auction rates for 10-year and 20-year treasury bonds, and the additional interest rate is determined by the government considering market conditions. Since the interest is calculated on a compound annual basis upon maturity, the yield is higher. This month, the interest rates including the additional interest rate were 3.425% for 10-year bonds and 3.520% for 20-year bonds. Purchasing 100 million KRW worth of 10-year bonds and holding them until maturity will yield 140.04 million KRW (before tax). For 20-year bonds, investing 100 million KRW and holding until maturity will yield approximately 199.74 million KRW (before tax), about double the principal.

Tax benefits are also available. Interest income received at maturity up to a purchase amount of 200 million KRW is taxed separately at a rate of 14%, without being included in comprehensive income.

There are also points to consider when investing. First, individual investment government bonds are long-term investment products, and interest and principal are paid in a lump sum at maturity, so there is no interest payment during the holding period. Also, in the case of early redemption, the nominal interest rate is applied as simple interest, and the additional interest rate, compound interest, and separate taxation benefits do not apply. Early redemption is possible from one year after purchase, but since redemptions are processed on a first-come, first-served basis within the monthly early redemption limit, redemption may not always be possible. Individual investment government bonds cannot be used as collateral for loans or pledged, and ownership transfer is restricted, so investors who may want to recover their investment mid-term should be cautious.