Small Investors in Japan Embrace Overseas Stock Funds under NISA Program
Small-lot investors in Japan have been actively investing in mutual funds that invest in overseas stocks under the NISA program, a government tax-free program for investments in investment trusts, stocks, and other instruments. This trend is driven by the desire for higher returns, as the Japanese stock market has underperformed compared to the US market in recent years.
The five most popular investment trusts, which all track performances of benchmark 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 highlights the strong preference for overseas investments among small investors.
Tsumitate Quota, where investors can choose from about 300 investment trusts for monthly investments, and Growth Quota for buying stocks or about 2,300 investment trusts, exchange-traded funds, and real estate investment trusts. However, a handful of instruments that mainly invest in overseas markets, whose returns are relatively high and commissions low, are particularly popular among investors.
This trend reflects the increasing awareness and interest among small investors in diversifying their portfolios beyond the domestic market. The NISA program, with its tax benefits and ease of access, has played a significant role in facilitating this shift towards overseas investments.
It is important to note that overseas assets, such as investment trusts, are subject to foreign exchange fluctuations. Their values rise when the yen weakens but fall when the currency strengthens. Investors should be aware of these risks and carefully consider their investment goals and risk tolerance before making any investment decisions.