The “New NISA” Customer Acquisition Plan: What to do before the New NISA starts…

Open a new account, switch accounts… “Point Return” is the criterion for choosing an account!

The new NISA will start in January 2012. Compared to the current NISA, the new NISA will be much easier to use, with an increased maximum investment amount and an indefinite tax exemption period. Many people may be considering opening a NISA account or switching financial institutions. So, which financial institution is best?　Let us compare them from the viewpoint of “point redemption.

New NISA will significantly increase investment limits and extend the tax-free period indefinitely.

The official name for NISA is the “Small Amount Investment Tax Exemption Program. As the name implies, it is a government program under which tax on gains from investments is reduced to zero. It began in January 2002 and is now in its 10th year. According to the “Survey on NISA Account Usage” published by the Financial Services Agency, the total number of accounts as of the end of December 2010 was approximately 18.04 million. The current population of the 20-79 age group in Japan is approximately 92 million, which means that roughly one out of every five people has a NISA account.’ Since 2008, there has been a marked increase in the number of young people in their 20s and 30s opening accounts.

The tax benefits of the new NISA will be greatly expanded. The current NISA includes the General NISA, which invests in stocks and investment trusts, and the Tsumitate NISA, which invests in investment trusts in the form of savings, each with an upper limit on the annual investment amount. The General NISA allows 1.2 million yen per year, while the “TSUSEITATE NISA” allows 400,000 yen per year, and one has to choose one or the other. Under the new NISA, the “Growth Investment Limit,” which corresponds to the General NISA, has been increased to 2.4 million yen, while the “Installment Investment Limit,” which corresponds to the “Installment NISA,” has been increased to 1.2 million yen, both significantly. Moreover, since both can be used together, the total annual investment limit is 3.6 million yen.

In addition, the tax exemption period for the current NISA was 5 years for the General NISA and 20 years for the New NISA, but both new NISAs have an indefinite period. No matter how much tax is not paid on gains from investments, there is no benefit of tax exemption if losses are incurred. In the case of stocks and investment trusts, it is possible to lose money for five years, so the longer the tax exemption period, the better.

NISA accounts are “no choice except for online securities!

Financial institutions that offer NISA include securities companies, banks, credit unions, credit associations, and agricultural cooperatives, but if you want to open an account, you should probably choose online securities. There are three main reasons for this: First, you cannot invest in stocks outside of a securities company. Even if you do not plan to invest in stocks for the time being, it is better to have a wide range of options.

Second, there is a wide range of investment trusts available , and only those that meet the requirements set by the Financial Services Agency are eligible for investment under NISA. And, except for online securities, the number of stocks handled is not necessarily large. For example, there are a total of 235 investment trusts eligible for the current “Tobuze NISA” (as of June 2011). While online securities offer around 180-190, many megabanks and major securities firms offer around 10 or so.

There are several mutual funds that have exactly the same contents, such as those linked to the Nikkei Stock Average, but have different holding costs (i.e., trust fees). Therefore, if there are similar products, you can choose the one with the lowest trust fee. However, if the product lineup is small, it is impossible to compare and select the best one.

Some banks and brokerage firms have lineups of mutual funds managed mainly by their own affiliated investment management firms. As a result, they tend to exclude similar products with cheaper trust fees. Perhaps these circumstances will not change much with the new NISA. We sometimes hear people say, “There are too many to choose from, so I don’t know what to choose,” but it is important to remember that you are more likely to lose money if you have too few to choose from.