Long-term asset management option via pension and dedicated accounts

Pre-tax return on 20-year bond held to maturity reaches 162.8% on compounding effect

[Provided by Mirae Asset Securities]
[Provided by Mirae Asset Securities]

Mirae Asset Securities announced Thursday that it will conduct the October subscription round for retail government bonds. The subscription period runs for five business days, excluding public holidays, from Thursday through Oct. 15.

Customers holding a dedicated retail government bond account may apply through Mirae Asset Securities branches nationwide or via the mobile trading system MAPS from 9 a.m. to 4 p.m. on business days. Customers with retirement pension accounts can also subscribe to 10-year and 20-year bonds through the retirement pension product screen within MAPS.

Total issuance for October stands at 230 billion won ($172 million), unchanged from the previous month. By tranche, the offering comprises 2 billion won in 3-year coupon bonds, 3 billion won in 3-year compound-interest bonds, 30 billion won in 5-year bonds, 150 billion won in 10-year bonds and 45 billion won in 20-year bonds. Compared with September, the 10-year tranche was expanded by 40 billion won, while the 5-year and 20-year tranches were each reduced by 20 billion won. The 3-year tranche remained at the prior month's level.

If total subscriptions fall within the issuance limit for each tranche, the full amount will be allocated. If subscriptions exceed the limit, up to 3 million won per applicant will be allocated uniformly, with any remaining volume distributed in proportion to subscription amounts.

October coupon rates are 3.875 percent for the 3-year bond, 4.275 percent for the 5-year, 4.510 percent for the 10-year and 4.520 percent for the 20-year. Spread rates applied are 0 percent for the 3-year, 0.05 percent for the 5-year, 0.28 percent for the 10-year and 0.43 percent for the 20-year.

Pre-tax returns for investors who hold to maturity are approximately 11.6 percent (3.9 percent per year on average) for the 3-year coupon bond, approximately 12.1 percent (4.0 percent per year) for the 3-year compound-interest bond, approximately 23.6 percent (4.7 percent per year) for the 5-year, approximately 59.7 percent (6.0 percent per year) for the 10-year and approximately 162.8 percent (8.1 percent per year) for the 20-year.

Investor interest in retail government bonds has remained consistent. In September, subscriptions totaling 258.5 billion won were received against a planned issuance of 230 billion won, yielding a subscription rate of 112 percent. Cumulative subscriptions through Mirae Asset Securities — the sole sales agent — reached approximately 2.4 trillion won through September this year. Given that total planned issuance stands at 1.64 trillion won, the average competition ratio comes to 1.47 to 1. The figures reflect sustained demand from investors seeking stable long-term investment options amid market volatility.

Retail government bonds are savings-type government bonds issued by the government for individual investors. Through dedicated accounts, investors can access 3-, 5-, 10- and 20-year bonds. For bonds of five years or longer held to maturity, the combined coupon and spread rate is applied on an annual compound basis, and investors can receive a separate taxation benefit on purchases up to a total of 200 million won.

Through retirement pension accounts — defined contribution and individual retirement pension plans — investors can access 10-year and 20-year bonds. Tax on retail government bonds held in retirement pension accounts is deferred during the investment period; if the proceeds are later received as pension income, pension income tax applies under the relevant conditions. By making use of the different tax characteristics of dedicated accounts and retirement pension accounts, investors can build long-term asset management strategies tailored to their investment horizon and the nature of their funds.

"Since the introduction of the retirement pension-type retail government bond in September, we have seen customer interest in managing pension assets using long-term government bonds," a Mirae Asset Securities official said.

Mirae Asset Securities recently launched a pension payout simulation service that allows customers to see the actual pension amount they will receive after accounting for taxes due at the time of payout. Going beyond a simple estimate of expected pension income, the service shows the after-tax amount by reflecting the applicable taxation method based on the nature of the funds accumulated in the pension account. The simulation automatically incorporates the tax framework and withdrawal order for each funding source, and also takes into account tax deduction history, providing each customer with a personalized after-tax payout estimate.


th5@heraldcorp.com