
Small Investors in Japan Flock to Overseas Stock Funds under Tax-Exempt Program
Small-lot investors in Japan have poured trillions of yen into mutual funds that invest in overseas stocks, taking advantage of a tax-exempt program launched a year ago. This trend highlights their desire for higher returns compared to the domestic market.
The five most popular funds, all tracking global or U.S. stock indexes, accounted for one-third of the approximately 11.8 trillion yen ($75 billion) invested through 10 securities companies during the first 11 months of 2024. This data comes from an Asahi Shimbun survey covering five leading securities houses and five online brokerages.
The popularity of these funds can be attributed to several factors. Firstly, the revamped NISA program offers tax-free investment in investment trusts, stocks, and other instruments. Secondly, a handful of instruments focusing on overseas markets offer relatively high returns and low commissions. Finally, the Nikkei 225 index of the Tokyo Stock Exchange has underperformed the S&P 500 index over the past four years, making overseas investments more attractive.
The survey also revealed that among investors in their teens through their 40s, the 10 most-bought investment trusts all track performances of overseas stocks. This indicates a growing preference for international diversification among younger generations.
However, it's important to remember that overseas assets are subject to foreign exchange fluctuations. Their values rise when the yen weakens but fall when the currency strengthens. Investors should carefully consider their risk tolerance and investment goals before making any decisions.
The NISA program allows individuals aged 18 or older to invest up to 3.6 million yen a year for a total of 18 million yen with taxes exempted permanently. This program provides a valuable opportunity for small investors to build their wealth over the long term.