South Korean investors have been raising their bets this year by putting their money into higher-profit, higher-risk financial instruments, trying to do better than the country's deposit rate of around 2 percent, industry data showed Sunday.

According to the data, seven local banks including Kookmin Bank and Shinhan Bank sold 5.3 trillion won (US$5 billion) worth of equity-linked trusts (ELTs) and equity-linked funds (ELFs) during the first nine months of the year.

The outstanding amount of the two instruments stood at 14.8 trillion won as of end-September, up 56 percent from a cumulative 9.5 trillion won the previous year.

The ELTs and ELFs, types of equity-linked securities (ELSs) sold by brokerage firms, offer gains in accordance with fluctuations in equity markets mainly in South Korea, Europe or China.

For example, Kookmin Bank's ELT guarantees an annual 5.9 percent interest rate unless stock indexes in the three countries fall more than 50 percent from the underlying price before maturity.

Shinhan Bank gives 5 to 6 percent profit to investors if the equities post less than a 60 percent drop.

Market insiders say that the record-low interest rates spurred investors to pour their money into the higher-profit instruments instead of placing money in deposit accounts.

As the Bank of Korea cut the key rate to an all-time low of 2 percent earlier this month, local banks also lowered their deposit rates to a similar level. 

According to the Korea Federation of Banks, Kookmin Bank offers a 2.1 percent interest rate for 12-month fixed deposits as of Oct. 14, with Hana Bank offering 1.8 percent.

Experts, however, note that the ELTs and ELFs are risky as investors can lose the principal if the stock markets plunge more than 50 to 60 percent.

They warn that the global financial market, which has been volatile for years, is on the verge of a possible slump due to protracted slow growth and widespread deflation.

In the midst of the 2008 financial crisis, 70 percent of then-sold equity-linked instruments suffered heavy losses as major stock markets nosedived more than 50 percent.

Financial authorities said they have noted the risks of ELTs and ELFs and ordered banks to give full and thorough explanations to customers before selling the instruments. (Yonhap)