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New measures for junk bond funds introduced.

The Financial Supervisory Service on March 9, 2007 announced new supervisory measures for high-yield funds commonly known as "junk bond funds" to meet recently amended tax law provisions, which apply a reduced tax rate for funds that invest 10 percent or more of the assets on speculative-grade corporate bonds and commercial papers.

The new measures assign the scope of junk bond funds and require stipulations and disclosures to be made in the investment contract and prospectus for junk bond funds.

Under the amended tax law provision, an investor who invests in a junk bond fund for more than a year and up to three years is eligible for a low 5 percent tax rate for any gains from investment up to 100 million won. There is no additional tax benefit for investment held in a junk bond fund beyond the three-year or the 100 million won cap. For foreign investors, there is no limit on investment amount eligible for the reduced tax rate.

These rules apply to junk bond funds that are newly created after January 1, 2007, and invest only in domestic asset with 60 percent or more in bonds and 10 percent or more in the eligible debt securities.

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Title Annotation:Economic News Briefing
Publication:Economic Bulletin (Korea)
Date:Apr 1, 2007
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