ISA Even Ignored by Donghak Gaemi Investors

Cumulative 2.02 Million by Late April... 10,000 Decrease in One Month
Profit Tax-Exempt Products Result in Losses Instead
Relaxed Subscription Conditions and Stock Investment Permission Useless

[Asia Economy Reporter Park Jihwan] Despite the surge in individual stock investment fever in the domestic stock market, known as the 'Donghak Ant Movement,' the Individual Savings Account (ISA) is rather being neglected. This is because the actual benefits of the ISA, launched by the government with the goal of increasing national wealth, are not significant. Recently, the government has introduced revitalization measures such as significantly lowering the subscription threshold and allowing stock investments, but it is uncertain whether the ISA will regain its former glory.

According to the Korea Financial Investment Association on the 8th, as of the end of April, the cumulative number of ISA subscribers was 2,021,779. This is a decrease of 13,463 from 2,035,242 at the end of March, a month earlier. The ISA was called a 'universal account' because it allows investment in various products such as savings/deposits, funds, Exchange-Traded Funds (ETF), and Equity-Linked Securities (ELS) with a single account. ISA contributions are capped at 20 million KRW per year, and income up to 2 million KRW (4 million KRW for the basic and farming/fishing types) is tax-exempt.

The ISA made a spectacular debut in March 2016, when it attracted 1,204,225 subscribers at launch. The number of subscribers peaked at 2,405,863 by the end of November that same year but has since been on a decline. This year, the number of subscribers has been decreasing by more than 10,000 each month. At this rate, the number of subscribers is likely to fall below 2 million by the end of this month.

The investment amount per individual has also stagnated or declined. As a type of installment investment product, the ISA’s investment amount typically increases over time. However, the average investment amount per ISA subscriber was 2.82 million KRW at the end of April last year and recorded 3.16 million KRW at the end of April this year. This 340,000 KRW increase over one year essentially means the accounts have been left untouched. In the banking sector, the average investment amount per person remains in the 2 million KRW range, and in the insurance sector, the investment amount has actually decreased by 50,000 KRW from 920,000 KRW to 870,000 KRW over the past year.

On March 24, the government decided to expand tax benefits for the ISA as part of financial market stabilization measures. Accordingly, the eligibility for subscription will be expanded from 'those with current income' to 'all adults,' and foreigners residing in Korea will also be allowed to subscribe. The plan also includes allowing direct investment in stocks in addition to savings/deposits and funds.

Despite these improvements, the advantages in terms of tax benefits and returns remain limited. As of the end of April, the average one-year return for discretionary ISA products was -2.23% for securities and -1.55% for banks. These products are supposed to offer tax-exempt benefits on profits accumulated over five years, but they are actually incurring losses.

Even if profits are generated and tax-exempt benefits are received, under the current system, only about 300,000 KRW in benefits can be expected over five years. A financial investment industry official said, "Considering that funds are locked in for a long period, the tax benefits do not even reach 100,000 KRW annually. Currently, there is virtually no incentive to subscribe, so unless there is a plan to sunset the ISA, urgent improvements such as expanding tax exemptions are necessary."

This content was produced with the assistance of AI translation services.