Pitfalls of the new NISA Thorough explanation of stock selection and what to look out for.

The New NISA will start in January 2024. The main feature of the new NISA is that it will allow for more long-term investment, including an indefinite tax-free holding period and a permanent investment period.

The existing ‘nasate’ (savings) NISA and general NISA have been replaced by ‘susumate’ (savings) and ‘growth’ (growth) investment frameworks, and the annual and lifetime investment limits have been significantly increased. At first glance, this may seem like an improvement in convenience, but are there any caveats? We asked two money writers to discuss the new NISA.

Comparing the differences between the current NISA and the new NISA

--This time we have gathered two money writers who are well versed in NISA. Let's start with your assessment of the new NISA, which will start in 2024.

Mr A: Thank you for your time today. The current NISA will end its new investment period at the end of 2023 and the new NISA will start in 2024. The main difference between the two is that the new NISA makes the system permanent and the tax exemption period indefinite. As it is no longer a time-limited measure, individuals can start at their own timing without worrying about the system ending.

Mr B: I also appreciate that the annual investment limit and tax exemption limit have been significantly increased.

The annual limit for growth investment (equivalent to the current general NISA) is now 2.4 million yen, and the annual limit for savings investment (equivalent to the current savings NISA) is 1.2 million yen, with a limit of 18 million yen for holdings. Although the growth investment limit is only 12 million yen, it seems that tax-free investment has become considerably easier.

▶ Fresh investment limit

Growth Investment LimitThe Growth Investment Limit is the successor to the current system of ‘Tatemonate NISA’. It allows investors to invest up to 1.2 million yen per year, or 18 million yen in total, in investment trusts that meet certain requirements, such as zero sales commissions and trust fees below a certain level.

▶ Growth Investment Limit

This is the successor to the current General NISA and covers listed shares and investment trusts. Investors can invest up to ¥2.4 million per year, or ¥12 million in total. The annual investment limit can be used either in a lump sum or in instalments.

Mr A: It is also important to note that under the current system, it is not possible to combine the General NISA and the Advance NISA, but it will be possible under the new NISA.

Mr B: What concerns me there is the use of different investment trusts. Under the existing system, investment trusts suitable for long-term accumulation and diversified investment are eligible, but under the growth investment system, investment trusts are also included in addition to listed stocks. It seems a bit complicated, doesn't it?

Mr A: The purpose of the savings and investment framework is to provide long-term accumulation and diversification, so eligible products are limited to certain investment trusts approved by the Financial Services Authority. On the other hand, the growth investment framework deals with other investment trusts and will eventually number around 2,000.

A number of new funds have been set up in time for the start, but be careful when selecting them as they do not have a track record. It is not too late to check the track record and price movements before jumping in.

Mr B: It seems convenient to be able to use two investment limits at the same time, but how should I use them differently?

Mr A: For example, you can accumulate low-risk index funds for the long term in the savings account, and aim for returns with active funds in the growth account, or hold high-dividend stocks to receive dividends.

Therefore, it is important to choose a product with a clear policy and goals for the type of investment you want to make in each investment line. Incidentally, it is not possible to use the two investment limits at different financial institutions. The rule is to use one financial institution, but you can change it on an annual basis.

The lifetime tax exemption limit is reset the year after the financial instrument is sold.

Mr B: Although it has been raised, there is still an annual investment limit. It would be better to invest with this point in mind.

Mr A: Yes, yes. You need to be careful in this respect. Under the current NISA, the investment limit is not restored even if the financial instrument is sold. For example, if you buy individual shares worth JPY 500,000 in a general NISA, the remaining tax-free investment limit for that year is JPY 700,000. If you subsequently sell your holdings, the amount will not revert to 1.2 million yen and the remainder will remain at 700,000 yen.

However, the new NISA's lifetime tax-free limit will be restored the following year if the financial instrument is sold. This allows you to buy and sell investment assets more actively than you can now.

Mr B: I see. I see. Currently, I was cautious about buying and selling because the investment limit is not restored, but with the new NISA, I feel a little more at ease.

Mr A: The other thing you need to be careful about is the asset allocation between the reserve and growth investment limits. If you want to invest only in individual stocks or buy investment trusts outside the line-up of the savings line, you have to use the growth investment line to the fullest.

If you want to use both the growth and the reserve investment limit, the basic rule is to start by accumulating investment trusts in the reserve investment limit, which has a large tax-free holding limit, and use the growth investment limit to invest the amount exceeding the annual investment limit of 1.2 million yen.

However, if you want to invest more in individual stocks, you can make more use of the growth investment limit, and so on, depending on your own needs.

Mr B: In other words, you can use the entire 18 million yen of your lifetime investment limit in the savings account, and up to 12 million yen of that in the growth account to invest in individual stocks and investment trusts not covered by the savings account. It gives you a great deal of freedom, but I feel that you have to plan carefully for this.

Mr A: Exactly. You can change financial products in the middle of the year or change your investment allocation from year to year, but you need to have a solid plan in place before you do so. More strategy is now required, in my view.

How do I get started with the new NISA?

--Mr B already has a NISA account, but does he need to open a new account for the new NISA?

Mr B: Indeed. Do I have to go through any procedures?

Mr A: If you already have a current NISA account, a new NISA account will be automatically opened with the same securities company in 2024. You do not need to go through any new procedures.

Mr B: Then that's good.

Mr A: By the way, I understand that you have a savings NISA, but are you investing up to your annual investment limit?

Mr B: No. I invest 20,000 yen a month, so 240,000 yen a year, which leaves me with 160,000 yen.

Mr A: If you want to make the most of the tax exemption scheme, you have to make good use of the current scheme as well. At the end of December this year, the current NISA will no longer be available for purchase, but the amount invested before then will be managed until the end of the system. In any case, you should increase your savings for the remaining months and increase the total amount invested.

Mr B: I see. The current NISA and the new NISA are separate, and the financial products currently under management will not be transferred. Because they are separate, you can increase your total investment amount by holding both accounts.

Mr A: There is no need to sell products held in the current NISA, and they can be held tax-free as they are for 20 years for the Tsumitate NISA and five years for the General NISA from the time of purchase, and can be sold during that time. Note, however, that you cannot transfer (roll over) to the New NISA after completing the tax-exempt period.

The New NISA can make a big difference between winners and losers if you don't study it.

--The New NISA gives you access to a wide range of financial products.

Mr B: To be honest, it seems hard to choose financial products.

Mr A: If you want support, shareholder benefits or dividends, you will have to own individual stocks, and since the NISA system itself is based on long-term investment, that is why stocks that are likely to grow over a long period of time or pay stable dividends are likely candidates.

The former would be undervalued stocks, and the latter would be stocks listed on the prime market. You can buy not only Japanese stocks but also US stocks, so it is also possible to try overseas investment. However, the number of foreign stocks handled differs depending on the securities company, so if you don't have an account yet, check beforehand.

Mr B: US stocks have a high dividend payout ratio, so they may be a good option if you focus on income gains. On the other hand, the problem is mutual funds and ETFs.

Mr A: As mentioned earlier, the Advance Investment Line only handles investment trusts that meet certain requirements. Basically, you would be buying index funds that aim to achieve investment results linked to market averages.

In the one-off and growth investment frameworks, you can buy products that exclude those that meet the following conditions: ‘issues to be liquidated or placed under supervision’, ‘investment trusts with trust periods of less than 20 years’, ‘investment trusts with monthly distributions’ and ‘certain investment trusts that use derivative transactions’.

The DIAM Vietnam Stock Fund, which expects growth in Southeast Asia; the AI (Artificial Intelligence) Global Stock Fund, which invests in AI-related stocks; the EXE-I Global South Stock Fund, the first publicly offered investment trust to invest in the Global South; and the EXE-I Global South Stock Fund, which is focused on improving PBR below 1x, which the TSE has requested. The Growth Investment Framework offers investment trusts that meet a variety of objectives and needs, such as the ‘Japanese Corporate PBR Improvement Fund’, the theme of which is to improve the PBR of Japanese companies below 1x, as required by the TSE.

It is true that there are so many that it is difficult to choose, but if you narrow down the products based on your investment targets, such as areas and industries, you will be able to find the investment trust you are looking for.

Mr B: With the current savings NISA, it was possible to choose products without much in-depth knowledge, such as ‘I want to invest in global stocks’ or ‘I want to hedge risk with balanced investment’. With the new NISA, on the other hand, it is difficult to find a product that meets your needs without doing some study on your own.

In addition, because the tax-free holding period is now indefinite, I feel that it will also be more difficult to make decisions on selling.

Mr A: With the current NISA, you had to sell within five years for the General NISA and within 20 years for the Motto NISA, which made it possible to be aware of the timing.

The new NISA, however, has no restrictions and requires self-determination. However, as it is possible to reuse the limit after selling, it may be a good idea to set rules, such as ‘I will lock in profits if the price rises to this level’.

Mr B: Compared to the current NISA, the increased freedom means that self-responsibility is also required.

Mr A: It is the most basic of basics, but like the current NISA, the new NISA also carries the risk of loss of principal. Given this, you should be careful when choosing products, whether individual stocks or investment trusts, and you should not rely on the rankings of securities companies or investment information websites.

Do not neglect information gathering and analysis. In extreme cases, the current NISA could have been left alone, but if you don't study the new NISA, there will be a big difference between winners and losers.

Mr B: I will keep today's talk in mind and give it a try. Incidentally, you mentioned earlier that different securities companies handle different numbers of foreign stocks, but are there any other differences?

Mr A: Basically, online securities companies are said to have a good line-up of products, but the number of investment trusts handled and their costs vary from company to company. If you want to invest mainly in investment trusts, it is better to have a full range of investment trusts, and it is also important to know whether you can invest with credit cards and what points you can accumulate. If it's before opening an account, it's to compare and contrast.

Mr B: Thank you very much. Today's discussion has clarified the advantages and disadvantages of the new NISA. I would like to make good use of it and receive the greatest benefit of tax exemption.

Secrets of the New NISA's popular stocks

Advantages and disadvantages of five major online securities companies

▶▶ SBI Securities.

Handles the largest number of stocks for the current savings NISA. The same is likely to apply to the new NISA, and is recommended if you want to choose from a wide range of stocks. The rate of return on credit card savings is not high.

▶▶▶ Rakuten Securities

Allows investment using Rakuten points. Recommended for Rakuten users who have a Rakuten card and use Rakuten Market frequently. Otherwise, other companies are fine.

▶▶▶ Monex, Inc.

The point reward rate for using your Monex card to accumulate credit card points is a high 1.1%. On the other hand, they offer fewer stocks for the current savings NISA than other companies.

▶▶au kabu.com Securities Co.

Recommended for Ponta point users. Fewer stocks of US equities are offered.

▶▶▶Matsui Securities Co.

No trading fees for Japanese stocks, US stocks and investment trusts under the new NISA. Up to 1% of points per year can be earned on the balance of mutual funds. Credit card savings not supported.

Summary of points to note about the new NISA

Profile.

◉Mr A.

Male in his 40s. Formerly an editor of an economic magazine and now a freelance money writer. He specialises in economic and market analysis and commentary on financial products, and has written numerous articles on NISA.

◉Mr B.

Male in his 30s. Freelance writer on money-related topics. He trades individual stocks and investment trusts as a private investor himself. He has also opened an account for the current NISA and is a member of the Tsumitate NISA.

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