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Banking & Finance

Japan's tax-free investment scheme rakes in half a trillion

TOKYO -- Japanese individual investors continue to channel their wealth into stocks and investment trusts under a tax-free savings account program launched in January, helping to prop up stock markets.

     A Nikkei poll of 10 prominent securities companies shows that Japanese have invested 500 billion yen ($4.79 billion) through the Nippon Individual Savings Account incentive scheme during the first three months. These brokerages, half major brick-and-mortar concerns and the rest online outfits, together handle the lion's share of funds moving into the markets under the program.

     The so-called NISA accounts exempt taxes on capital gains and dividends on investments of up to 1 million yen a year in stocks and mutual funds. To receive the tax breaks, which continue for five years from the time of initial investment, investors must open a separate account.

     A survey conducted one month after the program's launch put the sum of invested funds at about 300 billion yen. The subsequent two months saw the influx of another 200 billion yen. While that second figure represents a slowdown, it would be fair to say that interest remains high. Financial institutions actively promoted the program right after its debut, likely inflating the initial number.

     The 10 companies together counted 3.23 million NISAs at the end of last month. A quarter of the accounts, or roughly 770,000, had actually been used to invest.

     The average investment per account came to 620,000 yen. Of this, 60% was used to buy stocks, with the other 40% going into investment trusts. After the program's first month, trusts represented just 30% of the total, but interest in them has been rising as of late.

     NISA investors seem most attracted to stocks with sizable dividends. The shares of such fat-payout companies as Takeda Pharmaceutical and Mizuho Financial Group topped the list of stocks that brokerages say investors have favored. The two companies offer relatively high dividend yields -- annual dividends divided by share price -- of 3.7% and 3.1%, respectively.

     Among investment trusts, real estate investment trusts, which offer relatively large distributions, have proved popular.

     In another noteworthy trend, NISAs seem to be serving the asset-building needs of female investors. Women are estimated to account for just 20-30% of those investing in stocks and other securities in general, yet they are responsible for opening about 40% of the tax-free accounts.

     Young people, however, have not availed themselves of the scheme with the same zeal as middle-aged and older Japanese. At brick-and-mortar brokerages, 70% of accounts were started by investors 60 or older. Even online brokerages, which tend to attract more young people, have seen just 20-30% of NISAs opened by investors in their 20s and 30s.

     Moreover, the majority of NISA users are pre-existing clients of the brokerages, while few are first-time investors. And even though 80% of Japanese were aware of NISA, according to a Nomura Asset Management poll conducted in February, only 40% expressed a desire to climb aboard.

     "There is a need to carefully explain the significance of NISA to people that are currently of working age and those without investing experience," a Nomura researcher says.

     Demographic trends aside, the flow of individuals' funds, including those using NISA, is indeed helping to prop up Japanese markets. Overseas investors sold off more in Japanese stocks than they bought by a margin of just over 1.8 trillion yen between January and March, according to the Tokyo Stock Exchange. But net buying by Japanese individual investors came in slightly above 1.5 trillion yen, helping to offset the flight of foreign funds.

     Attention is turning to the question of how to make the program more user-friendly. Many would like to see the tax-exempt status made permanent. Others advocate allowing parents to open accounts on behalf of their minor children as under the U.K.'s system, on which NISA is modeled.

(Nikkei)

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