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Why Fractional Investing is Gaining Popularity Among Young

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South Korea’s young investors are turning to fractional investing platforms to make their savings grow. These platforms allow users to hold small stakes in various assets, such as music royalties, fine art, and even farm animals. With limited options to invest in property or support a family due to the country’s challenging job market, young South Koreans are seeking alternative investment opportunities.

One such platform, Musicow, gained popularity after a video of K-pop group Brave Girls performing their hit song “Rollin’” went viral in 2021. Kim Seong-min, a fan of the group, saw an opportunity and purchased shares of the song’s royalties on Musicow for 670,000 won ($506) each. Within a few months, the value of his shares had doubled, motivating him to invest further.

The enthusiasm for fractional investing is not limited to music royalties. South Korea’s fractional investment platforms offer a diverse range of assets to investors. Tessa, for example, allows users to invest in fragments of fine art, including works by renowned artists like Banksy and David Hockney. On Bancow, investors can even purchase fractions of calves and share in the profits when the animals are sold.

Many argue that fractional investments are a safer option compared to digital coins or traditional stocks, considering the volatile nature of cryptocurrencies and stock market fluctuations. Musicow, for instance, provided returns of nearly 9% in 2022, a favorable performance given the market conditions.

However, this perception may not always hold true. Hong Ki-hoon of Hongik University suggests that fractional investments are not necessarily safer in terms of financial risk than traditional assets. Kim Seong-min, the investor in Brave Girls’ song royalties, is learning this the hard way as the value of his shares plummeted to 334,000 won.

Recognizing the potential of the fractional investing industry, South Korea’s Financial Services Commission (FSC) has classified the assets traded on Musicow as securities. The FSC may take similar actions to regulate other fractional-investing platforms, utilizing the Howey test, an American rating of financial instruments, to determine their classification.

Despite this regulatory scrutiny, the South Korean government aims to foster the growth of the fractional investing industry. The FSC has labeled Musicow as an innovative financial service and plans to allow the issuance of security tokens, blockchain-based assets that facilitate fractional investment. Additionally, profits generated from fractional shares will not be subject to dividend or capital-gains taxes.

Securities firms have been quick to recognize the potential and are forging partnerships with fractional-investing platforms. However, the government advises entry-level investors to approach these investments with caution.

It is clear that fractional investing has struck a chord with young South Koreans, presenting them with an opportunity to grow their savings in a challenging economic environment. While there are risks involved, the government’s support and the innovation within the industry provide a glimmer of hope for those seeking alternative investment avenues.

Original content from The Economist, published under license.

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