What is an individual investment account

Why is it needed

An individual investment account is an account for transactions in the stock market. Through it, you can invest in stocks, bonds, shares of investment funds, currency, precious metals and other financial instruments. Unlike conventional accounts, which you can open with a broker or trustee, IIS allows you to save on taxes.

What is the risk?

If you choose the assets and the time of their purchase and sale well, the return on investment will be higher than on bank deposits. But the profit is not guaranteed – you can earn less than in the bank, or even incur losses.

And the higher the potential return on investment, the more likely it is to lose investments.

In addition, unlike bank deposits, IIAs do not fall into the deposit insurance system.
In this case, it does not matter at all whether you have official income. The income deduction allows you not to pay personal income tax on the amount that you earn on operations through your IIS. But you can get this type of deduction only when you close the account and not earlier than three years after opening it.

How to get an income deduction?

You can get a deduction through your broker or manager. To do this, bring him a certificate from the tax office stating that you did not receive a deduction for the contribution on this account and did not open another IIS. The broker or manager will act as your tax agent and, when he pays you income, will not withhold tax from it.​

• If the intermediary has already paid you income minus personal income tax, then you can get a deduction through the tax.
• What is important to remember about IIS?
• You can only have one IIS. If you want to open a new account with another company, you will have to close the first IIS.
• You cannot turn an already opened account with a broker or manager into an IIS.
• If you are counting on a tax deduction, you cannot withdraw money and close the account earlier than three years after opening it.
• Income from securities – dividends on shares and coupons on bonds – can be credited to the IIS or withdrawn to your bank account. The main thing is to prescribe such a condition in the contract with the broker or manager.
• The date of opening the IIS with the broker is the date of the conclusion of the contract, with the manager – the date the funds are deposited into the account.
• Money and assets from IIS can be transferred from one broker or manager to another. To do this, you need to open a new account, and close the old one within a month.
• You can replenish your account at any time, contributions are not tied to dates.

What can be invested in through IIS?

Money from IIS can be used in the same way as money from a regular brokerage account or transferred to a trustee. They can buy securities, currency and precious metals.

The set of available assets depends on your experience, knowledge and personal capital. The simplest and least risky securities can be bought by all investors, including beginners.

You will be allowed to invest in more complex tools after special testing. In order to acquire assets that are the hardest to predict and the most likely to lose, you need to qualify as a qualified investor.

Who are brokers and managers?

These are professional participants in the securities market who become intermediaries between you and the stock exchange. Their functions are similar, but there is a difference.

By concluding an agreement with a broker, you can independently make transactions on the exchange through a trading terminal or a mobile application.

But in order for investments to make a profit, you need to have a good understanding of what is happening on the market (or be ready to dive into all the subtleties): study quotes, follow events, carefully and thoughtfully calculate and compare.

The broker does not determine which assets the investor will invest in. But he must ensure that financial instruments correspond to the level of knowledge and experience of the client.

The manager himself decides when and what assets to buy and sell, so you do not have to dive into details.

This does not mean that the manager can do whatever he wants with your money – he acts within the framework of the contract that you sign. By concluding an agreement with the manager, you agree on an investment strategy. For example, if this strategy is conservative, the income will not be very high, but the risk will be minimal.

In any case, whoever you choose – a broker or a manager – check that he has the appropriate license.

And of course, compare offers: each broker or manager offers its own conditions, a set of financial instruments and account maintenance fees.

Risks when using IIS

Unlike traditional bank accounts (settlement and savings), investment accounts are not protected by government guarantees. This means that in case of fraudulent actions on the part of the broker or other unforeseen situations, the loss of funds will not be reimbursed.

Therefore, when choosing a management company, you should pay attention to the following points:

• availability of licenses and permits, international accreditations;
• the history of the broker’s actions in the market;
• assessment by rating agencies.

Although funds for IIS are not insured by the state, the account holder automatically retains all rights to the acquired assets. This information is immediately entered into the depository, and therefore, in the event of termination of the brokerage company, the purchased securities can be transferred to another management organization.

In addition, the profitability of IIS depends solely on how the account holder or broker manages the money. Buying and selling exchange-traded assets can bring profits higher than bank rates on deposits, or, on the contrary, turn into losses.

There is no maximum limit on the terms of work through the IIS. But closing it earlier than in three years may not be justified. You will automatically lose the bonus in the form of a tax deduction: it will have to be returned.

The investment risk depends on the skill level of the investor. The more experience and knowledge you have, the wider the set of investment instruments that is available to you.

Your broker or manager must ensure that the securities you purchase are appropriate for your level of investment. For example, you can buy securities for qualified investors only if you have received such status.