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The total net assets in Korea's exchange-traded fund (ETF) market surpassed 170 trillion won ($117.1 billion) for the first time in December.

However, despite this remarkable growth, concerns persist over inadequate investor protections. Limited product differentiation and fragmented information make it difficult for investors to make informed decisions.

According to the Korea Financial Investment Association, as of Wednesday, the net assets of domestic ETFs stood at 173.1 trillion won. This marks an impressive increase of 52 trillion won compared to the end of December last year. The number of ETFs also grew by 121 to reach 934 during the same period.

Despite headwinds in the domestic stock market, the ETF market has expanded significantly by focusing on overseas equity assets. Over the past three months, net assets have increased by more than 10 trillion won. Currently, individual holdings in overseas equity ETFs are nearly three times larger than those in domestic equity ETFs.

The market, however, is also experiencing growing pains. Intense competition among asset management firms has led to a surge in product launches, many of which lack clear differentiation and merely follow trends. As a result, capital is increasingly concentrated in a few large-scale ETFs, while small-scale ETFs are being voluntarily delisted.

"ETFs should be products designed for long-term investment," Choi Su-jung, a business professor at Soongsil University, said during a policy symposium hosted by the Korea Capital Market Institute, Thursday. "To achieve this, it's essential to build trust that ensures ETFs will still be meaningfully traded five or 10 years down the line."

While the growing variety of ETF products appears to offer investors more options, the lack of distinct features has made decision-making more challenging, according to Choi.

Financial Services Commission Chairman Kim Byoung-hwan echoed this concern at a September meeting with asset management companies, criticizing the concentration within the ETF market.

"The concentration of specific assets or products is becoming increasingly prominent in the asset management industry," Kim said. "Excessive asset clustering and heightened market synchronization can undermine financial stability and significantly affect investor protection, as well as the financial soundness of institutions during external shocks."

The current state of the platform — where ETF information is not only difficult to compare but also scattered — further complicates the ability of investors to make optimal investment decisions.

Nevertheless, the investment industry believes the domestic ETF market will continue to grow, with the potential to reach 200 trillion won by next year.

This optimism is fueled by growing public interest in overseas investments. ETFs offer greater convenience and risk diversification compared to directly purchasing individual stocks, particularly given the limited information available on foreign equities.

Additionally, the rising popularity of hybrid investment strategies that blend direct and indirect approaches, coupled with the rapid growth of investments in pension accounts, is further driving the appeal of ETFs.