With investment in platinum exchange-traded funds (ETFs) expected to rise this year, developments in Japan could offer longer-term growth opportunities, says the World Platinum Investment Council (WPIC).

The council notes that, a decade ago, a new product designed to encourage investment by individuals was introduced as a temporary measure in Japan.

This tax-free investment, called a Nippon Individual Savings Account (Nisa), is modelled on the UK’s Individual Savings Account (Isa). As with the Isa, the Nisa can include shares in ETFs, including platinum ETFs.

In January, reforms to Nisa were introduced by Japan’s government, designed to further encourage a shift away from saving cash towards long-term investment and ownership of securities among individuals.

The WPIC notes that the government’s goal is to double both the number of Nisa accounts to 34-million and the total Nisa investment from ¥28-trillion to ¥56-trillion within five years.

Changes included an expansion of investment limits and the introduction of an unlimited tax-free period, removing the temporary nature of Nisas.

This initiative has sparked a significant shift in investor sentiment and behaviour in Japan and increased scope for precious metals investing, including investments in platinum ETFs, says the WPIC.

An ETF tracks the price of a commodity or other type of financial asset. ETFs are listed entities that issue shares, which can be traded on an exchange, meaning that prices can vary throughout the day.

Investors can buy and sell shares in an ETF, including a platinum ETF, either directly from the exchange it is listed on or through a broker.

With a physically backed platinum ETF, investors know that the value of their shares is, under most circumstances, 100% matched by physical platinum in the form of investment bars, the WPIC explains.

These platinum bars, held in a highly secure vault, are the only assets of the fund and reflect the platinum price, less fees – which can be well below 1% a year.

This type of asset allows an individual or asset manager to invest in physical platinum without incurring additional costs, such as insurance premiums and storage costs.

Where buyers of a platinum ETF exceed sellers, new ETF shares are issued.

In this instance, the WPIC explains, the fund typically has three days to buy platinum bars in the spot or over-the-counter market and deliver them into the vault, which is usually at a large commercial bank, in order to ensure the fund’s holdings of physical platinum reflect its shareholdings.

The traded value of an ETF share tracks the spot platinum price. As a result, an ETF investor can make money when the platinum price rises and lose money when it falls, in the same way that anyone who owns platinum in its physical form can.

The WPIC says global platinum ETF holdings are forecast to increase by 150 000 oz this year, following a sharp uptick in demand during the second quarter, supported by platinum’s discount relative to gold and strong long-term fundamentals.