Kosdaq Venture Funds Attract 1 Trillion Won in 10 Days

As Kosdaq venture funds attracted more than 1 trillion won (US$935.02 million) in 10 days after its release on April 5, they are becoming “black hole” that draws capital. This is largely due to expectations for small and mid-size funds, tax benefits of the government and preferential allocation of stocks for public subscription. In addition, the fact that there are recently no distinguished funds in the small and mideum-capitalization stock market draws individual investors to Kosdaq venture funds.

According to the Korea Financial Investment Association (KOFIA) on April 17, the cumulative sales of Kosdaq venture funds after April 5 amounted to 1.12 trillion won (US$1.04 billion) as of April 13. As the number of subscriptions of Kosdaq venture funds accelerated, the daily average amount of funds surpasses 100 billion won (US$93.5 million). It is expected to show a steeper growth.

A venture fund invests 15 percent in venture companies’ new stocks, including bond with warrant (BW) and convertible bond (CB), 35 percent in new and old stocks of Kosdaq-listed companies that got away from venture companies less than seven years ago. Investors can receive a 10 percent deduction with the limit of 3 million won (US$2,805) on their income taxes for up to 30 million won (US$28,050) when they make an investment inKosdaq venture funds for over three years. They can also be preferentially allocated 30 percent of public offering of new stocks to be listed on the Kosdaq.

Until now,capital for venture funds with the limit of 49 investors has flown in mostly from high-net-worth individuals. Seven public offering funds attracted 203.4 billion won (US$190.38 million), while 78 private funds drew 7.03 trillion won (US$6.59 billion). However, the amount of poublic offering funds, which stood at a mere 7 percent on the first day of the release, is expected to continuously grow as the ratio expanded to 20 percent on the 12th.

The subscription for Kosdaq venture funds is gaining speed. The amount of investments in the funds came to 370.8 billion won (US$347.52 million) on the 5th, the first day of its release, 15 billion won (US$14.06 million) on the 6th, 97.3 billion won (US$91.19 million) on the 9th, 86.2 billion won (US$80.79 million) on the 10th, 120.1 billion won (US$112.56 million) on the 11th, 147.3 billion won (US$138.05 million) on the 12th and 101.8 billion won (US$95.41 million) on the 13th. As up to 150 billion won (US$140.58 million) of money flew into the funds a day on average, the sales showed a more than 10 percent growth every day. Given such a trend, the total amount of Kosdaq venture funds is forecast to exceed 1 trillion won (US$937.21 million) as of the 16th, the 10th day of the release.

Some securities industry sources say that Kosdaq venture funds will boost the Kosdaq market. In fact, the Kosdaq index went up 3.22 percent from 868.93 to 896.89, though it was bearish for only two out of eight trading days from April 5 to April 6.

An official from the KOFIA said, “Kosdaq venture funds are so popular in the market because the government seeks to revitalize the Kosdaq market and gives tax benefits. Venture funds attracts investors’ attention based on actual benefits of income tax deduction so they are highly likely to be steady seller products.”