Individual Investment Account (IIA)

2017

230 thousand IIS are open

By July, 2017 investment accounts opened about 230 thousand people, having placed on them more than 24 billion rubles. The digit is considerable, considering that all in the stock market individuals opened 1.5 million accounts, about 400 thousand more citizens entrusted the savings to mutual funds. Taking into account the current growth rates the number of owners of IIS by the end of 2017 can exceed 300 thousand people, and within five years – to reach 1 million.

However a number of experts drop a hint of doubt in attractiveness of the offered investment mechanism. According to them, rates of opening of new IIS are comparable to those which showed normal broker accounts over the last ten years. Sceptics can object as follows: if not new opportunities, these 230 thousand investment accounts simply would not be open.

Nevertheless, the volume of the money invested by Russians in securities are several orders less than those means which are on bank deposits.

The State Duma adopts the law on insurance of ISS in the first reading

Investment insurance in the stock market by analogy to insurance of bank deposits could become an additional incentive for private investors. Since 2014, the similar ideas were discussed in the Central Bank, the Ministry of Finance, the State Duma and the Federation Council with active participation of National Association of Securities Market Participants (NAUFOR). After start of the IIS mechanism in 2015 discussions continued already in relation to such accounts.

Introduction at the beginning of 2017 into the State Duma of bill No. 76910-7 "About investment insurance of individuals on individual investment accounts" became a result of discussions. The option approved with the government was accepted by the lower house in the first reading in June, 2017. One of developers – the head of the State Duma Financial Market Committee Anatoly Aksakov – calculates that in the fall of 2017 the law will be adopted by parliament and is signed by the president, then it will be able to become effective since January, 2018.

What basic provisions of the law? Object of insurance are the money and securities placed on IIS belonging to citizens. Insured events offer to recognize cancellation of the license of the professional participant of security market (the broker, the managing director, depositary), at the same time investment risks, reduction in cost of assets and a lost profit with insured events will not be.

Actually it is that initial contribution to the investment account (but not the profit earned from the stock market) from fraudulent activity will be insured from the broker or the managing director. It in general reminds insurance of bank deposits at which the deposit amount, but not accrued interest is insured. The amounts of an insurance indemnity in both cases also match – 1.4 million rubles.

Financing sources of future fund of investment insurance suppose to make contributions of professional participants of security market which will become participants of a system of insurance. In May, 2017 the chairman of the board of NAUFOR Alexey Timofeev reported that brokers and managing directors are ready to create within two years at the expense of contributions fund of insurance of 300 million rubles. In the law it is stated that the Deposit Insurance Agency (DIA) will be the operator of fund of investment insurance, as well as in a case with deposits. At the same time funds of deposit insurance and investments will be separated to exclude cross financing between them. Also in the bill it is specially emphasized: "Financial stability of a system of investment insurance is not guaranteed and not provided with the state".

However, participation of DIA – still debatable question. The Ministry of Finance and the Central Bank support that functions of an insurance agent were performed by Fund for protection of investors and shareholders which was created in the 1990s and on which accounts for July, 2017 there are 1.3 billion rubles. According to the financial authorities, participation of DIA in investment insurance on investment accounts can make at citizens "a false impression that their investments in the market are guaranteed by the state, and it not so". Developers of the bill have time till fall to compromise with government officials.

At the same time market participants would like that the state took part in formation of insurance fund – if not in the form of financial injections then at the level of obligation fulfillment guarantees before private investors. Deliberate bankruptcy of the broker who disappeared with money of clients – extremely exceptional case therefore the amounts of guarantees will be small. Besides, as we wrote above, the money placed on IIS is not comparable with volumes of deposits in banks.

The state guarantees are important to private investors as a factor of psychological support. The matter is that the law in case of its acceptance will be become effective since January 1, 2018, however by its chapter 2 regulating an order and conditions of payment of an insurance indemnity in the fall – only since July 1, 2021. Whom to address to private investors in case of a loss occurrence within these three and a half years, unclear.

Increase in the amount of a contribution to ISS from 400 thousand to 1 million within calendar year

In June, 2017 Vladimir Putin signed the federal law adopted by parliament which makes amendments to the legislation regulating activity of security market. According to these amendments, the maximum amount which the owner of the individual investment account (IIA) can deposit to the account within one calendar year was increased from 400 thousand rubles to 1 million rubles.

This step will strengthen trust and will increase interest in investments in the Russian exchange assets. But at the same time it can lead to an overflow of funds for investment accounts – for example, from mutual funds.

The IIS system as the new investment mechanism earned since January 1, 2015. As envisioned by developers, individual investment accounts had to increase attractiveness of investments in assets of the stock market and attract new private players who with vigilance treated earlier trade on stock exchanges. It was supposed to make it at the expense of tax benefits.

Opening IIS, the client at the same time selects a certain type of a privilege. He can receive tax deduction in the amount of the paid earlier income tax (but no more than from 400 thousand rubles) or to exempt all income earned from the stock market from taxes. And here we approach an important point of the law signed by the president: despite increase in an annual contribution to IIS by 2.5 times, tax deduction according to the PIT will remain to they are 52 thousand rubles at most, i.e. 13% of 400 thousand ^[1].

The owner of IIS receives income tax refund even if there is no cash flow on the account. This strategy was selected by 60% of owners of IIS – within a year they did not recharge and did not conclude the security transaction.

From the remained owners of IIS it is possible to call more than a half inactive – they make no more than five transactions a month. It is possible to tell that our fellow citizens underestimate possibilities of an investment deduction of the second type.

If to look at a situation from this point of view, then the new law which raises the annual amount of a contribution to 1 million rubles, but at the same time return of the PIT at the previous level leaves, should promote, as envisioned by his developers, to attraction on the stock market not of just new investors, but active investors, besides the money locating бóльшими. Expansion of investment opportunities as higher amounts will allow to build more diversified securities portfolio can attract wealthy clients.

However there will be not enough only one increase in the maximum threshold amount of an annual contribution to IIS for creation in the stock market of a new class of the mass retail investor. Because to investors not only the extended opportunities, but also and certain guarantees are important. Therefore recently all opinions are expressed to a bowl that it is necessary to develop the system of insurance of means similar to the system of guaranteeing bank deposits for IIS. If money for IIS is protected on a case of revocation of license of broker or management company, it will increase demand for services of professional participants of the market from potential investors.

Besides, decrease of the inflation rate with inevitability leads to decrease in deposit rates. In similar conditions investors will look for more profitable location modes of the money. High potential return of exchange tools, new opportunities of IIS and – in the long term – insurance of means on investment accounts will help to make a choice for benefit of the stock market.

217 thousand ISS are open

In total since January 1, 2015 Russians opened about 217 thousand IIS (data of the Moscow Exchange according to the results of April, 2017 are like that). It should be noted that from them more than 67 thousand for the first time entered the Russian stock market. At the same time in 2016 twice more accounts, than in 2015 were opened; inflow of means last year was also twice higher. At the same time quarterly dynamics shows that the reached growth rates by this moment were stabilized and, most likely, will not increase further.

Investment accounts appeared in the USA in the 1970th years as the effective instrument of long-term investment of pension savings.

See Also

• Investments into silver
• Investments into gold
• Venture investments into the IT sector of Russia
• The direct foreign investments in Russia
• The direct foreign investments in Europe

Notes