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Abstract
The impact of tax incentives on the investment attractiveness of bonds for retail investors is assessed in the article. The paper presents a comparative empirical analysis of investment attractiveness of Russian bonds and bank deposits for domestic retail investors. We identify investment preferences of retail investors in Russia, analyze investment characteristics of deposits in Russian banks and a variety of bonds available for retail investors. Given the tax benefits of the recently introduced Individual Investment Account, we show that the real yield of investment in government bonds is over eight times higher than the yield of bank deposits. Despite higher risks of investing in bonds, we conclude that government bonds taking into account the tax benefits of the Individual Investment Account could be a realistic alternative to bank deposits for Russian retail investors.
Highlights
Investment is a necessary condition for the development of the national economy
This study provides a quantitative assessment of the benefits for unqualified investors from using tax incentives connected with individual investment account
In the Russian Federation, retail investors make up a small share in the securities market, despite the efforts of the Bank of Russia to stimulate the domestic investors and create favorable conditions for their activities
Summary
Retail investors form a stable investment base in any country. The financial market mechanism redistributes the savings of retail investors to enterprises, contributing to the solution of strategic economic problems. In addition to a significant economic role, increasing the activity of retail investors in the financial market plays a social role through the formation of additional household income, including pension income. A specific feature of Russia’s financial system is rather low activity of households in the financial market and the shift of their preferences towards investing in retail bank deposits that are extremely popular compared to securities. As of the end of 2016, the total number of individual investors in Russian stocks and bonds (residents of the Russian Federation) amounted to 1038 thousand which is only about 0.8% of the employable population (Tregub et al 2016)
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