Interest is growing among long-term investors in "individual savings treasury bonds," regarded as stable long-term investment products offering tax benefits. However, advisers note that careful review is needed before investing, as investors cannot receive compound interest or separate taxation benefits on interest income upon early redemption.
According to the financial investment industry on the 18th, demand concentrated on 3- and 5-year maturities in the recent July subscription for individual savings treasury bonds. According to Mirae Asset Securities' mobile trading system (MTS), on the closing day, the 14th, the 3-year coupon bond and compound bond recorded subscription rates of 1.51-to-1 and 1.08-to-1, respectively.
The 3-year maturity was first launched in April this year. A compound bond pays interest calculated on a compound basis along with the principal in a lump sum at maturity. A coupon bond pays regular interest once a year during the holding period and pays the principal along with regular and additional interest at maturity. The 5-year maturity also drew subscribers, showing a rate of 1.23-to-1. However, interest in the ultra-long-term 10-year and 20-year maturities was low. The 10-year and 20-year maturities recorded rates of 0.53-to-1 and 0.67-to-1, respectively.
Individual savings treasury bonds are savings products issued by the government for individual investors. The government issues them monthly, and the total monthly issuance size varies. For July's individual savings treasury bonds, the total issuance size was tallied at 160 billion won, down 40 billion won from the previous month. Since issuance sizes also differ by maturity, careful consideration is needed. For July's individual savings treasury bonds, the sizes were: 3-year coupon bond, 3 billion won; 3-year compound bond, 7 billion won; 5-year, 60 billion won; 10-year, 70 billion won; and 20-year, 20 billion won.
Added rates also differ by maturity, so they must be checked. This is because pre-tax returns differ after maturity. For July's individual savings treasury bonds, the added rates were: 3-year, 0%; 5-year, 0.05%; 10-year, 0.6%; and 20-year, 0.65%. Accordingly, if held to maturity, the pre-tax return for the 5-year is 22.22% (4.44% annual average), while the 10-year is 58.52% (5.85% annual average).
There are also points investors should be mindful of. If individual savings treasury bonds are held to maturity, interest is paid on a compound basis by adding the coupon rate and the added rate. Tax-saving benefits through separate taxation are offered up to a purchase amount of 200 million won. Early redemption is possible starting one year after issuance, but upon redemption, only interest based on the coupon rate is paid. Benefits such as separate taxation on interest income also do not apply, so caution is needed.
