TOKYO -- Japanese financial institutions began taking applications for installment-type Nippon Individual Savings Account program, popularly known as NISA, on Oct. 2, as they try to encourage new investors to build up their long-term assets through low-cost investment trusts. Banks and brokerages are trying to attract younger clients with little or no investment experience.
The installment-type NISA is a tax-exempt individual savings vehicle. Under the program, investors make monthly contributions to low-cost investment trusts approved by the Financial Services Agency. Investors can contribute up to 400,000 yen a year to the trusts and with the gains tax exempt for 20 years, starting from the first year of contributions.
The installment-type NISA program runs from 2018 to 2037. Investors can hold only one NISA account, either the current NISA accounts on offer or the new installment type.
A 38-year-old man in Tokyo said he is thinking of opening an installment-type NISA account. "I don't know much about investing, but maybe I can do this," he said.
The new accounts are aimed at novice investors. Nomura Asset Management estimates that there are 3.65 million potential customers, between the ages of 20 and 59. With an expected monthly average contribution of 13,000 yen per person, the market is forecast to reach 11.4 trillion yen ($101 billion) by 2037, when installment-type NISA program ends.
A penny saved
Financial institutions are using a variety of techniques to attract investors.
Unusually, Nomura Securities, a big brokerage, is focusing on marketing to its corporate customers. It plans to encourage companies to adopt installment-type NISA accounts for their profit-sharing programs, as many salaried employees have benefited from higher stock prices due to Abenomics, said Toshiyuki Ikeda, a senior corporate managing director at Nomura.
In 2015, Mizuho Bank launched Smart Folio, an online automated advisory service to suggest asset allocation strategies to its customers.
Online brokerages, which are popular with new investors, are also getting in on the act. Rakuten Securities, a unit of the online retailer, lets customers use its Rakuten Superpoints loyalty program to buy installment-type investment trusts, while SBI Securities will award its users points based on the balance of their investment trusts, including installment-type NISA accounts.
One problem for financial services companies is the low profit margins the new accounts offer. Many were unable to accept application forms on Oct. 2 -- some because their systems were not ready, others because of bleak long-term profit forecasts.
Installment-type NISA accounts use only low-cost investment trusts. Trust fees, equivalent to asset management fees, for most instruments are below 0.5%. Even an 11 trillion yen market translates to a profit of only a few hundred million yen per provider at that rate.
"Given the cost of investment in computer systems, printing and putting out investment reports, financial institutions will likely post losses for some time" in their installment-type NISA business, said an executive with a big brokerage.
The FSA on Oct. 2 announced the first 103 investment trusts that are eligible instruments for installment-type NISA accounts. There are 90 index-linked investment trusts and 13 actively managed ones -- which aim for above-average returns based on portfolio managers' expertise.
Of the eligible trusts, the quality of 16 products improved, such as by lowering commissions. The number of investment trusts that invest in several assets both at home and abroad more than tripled to 36 from last November. "Investors are focusing more on diversified investment products," said an FSA official.
Trust fees are generally low. In the case of index-linked investment trusts that buy domestic assets, the average fee is 0.26%, about half the statutory maximum of 0.5%. The average trust fee for 90 index-linked investment trusts was 0.34%.
When the FSA announced the eligibility requirements in March, only 1%, or about 50, of some 5,000 publicly sold investment trusts met the criteria for installment-type NISA accounts. The new accounts began with 103 available investment funds. The agency expects that number to rise.