Bankers recommend risky products for ISA

There’s a new financial platform in town, and Korean investors of all income levels are wondering how they ought to use it to manage their money.

The individual savings account (ISA) will officially launch on Monday at major banks and brokerages.

With the new account, subscribers are free to create their own portfolio or use one that has been prepared by the financiers. In either case, they are able to choose various investment options of any size as long as the total is less than 20 million won ($16,600).

Shinhan Financial Investment, one of the largest brokerages in Korea, surveyed some 100 private bankers last week about which options are most promising.

The private bankers recommended people put risky but high-yielding equity-linked securities and derivative-linked securities into the ISA.

About 37 percent of bankers suggested that an ISA holder should include the risky products into their new account. Twenty percent recommended fund products and deposit accounts, while 12 percent recommended repurchase agreements. The remaining 31 percent offered mixed responses.

“The bankers picked options that offer better yields than savings accounts while still being as stable as possible,” said Ki On-chang, a senior researcher at Shinhan Financial Investment.

Korean retail investors panicked last month when they lost principal investments worth about 4 trillion won after the Hang Seng China Enterprises index dipped below 7,500 points.

Local investors are known to have lost almost 200 billion won in the first two months of the year when many derivative-linked securities reached their maturity despite the futures of raw materials like crude oil - which many of the securities follow - continuing to be low, according to FnGuide, a financial information provider.

The bankers still put equity-linked securities and derivative-linked securities as the top pick, but they emphasized that investors should pick only “no knock-in, low barrier” products, which are designed to offer them the promised return if the index hits a certain level on the day it reaches maturity.

Unlike the “knock-in” products, frequent fluctuations in the index do not hurt the returns under “no knock-in” products, though the latter promises lower returns.

When it comes to fund products, the bankers recommended bond-based products instead of those based on securities.

Many brokerages have already announced they will offer exceptionally high interest rates of up to 5 percent to early subscribers who include repurchase agreements in their ISAs.

Besides the ISA, bankers also emphasized that investors should consider tax-free overseas investment funds, which financiers began selling on Feb. 29.

BY KIM JI-YOON [kim.jiyoon@joongang.co.kr]