What to Invest In: How to Choose a Fund in Japan

Quick Answer: Inside a NISA or iDeCo, most long-term investors hold one broadly diversified, low-cost equity index fund and buy it monthly. Three things decide the choice: cost (the annual trust fee), coverage (how much of the world it holds), and currency (hedged or not). Start from the FSA's screened accumulation-quota list.

Opening the account is the easy part. The moment you finish, your broker shows you a search box and several thousand funds, most of them named in Japanese, and nothing tells you which one to press. This guide is the missing step between opening a NISA and actually investing.

This is educational information, not financial or investment advice. Investing carries risk, including loss of principal. Funds and index families are named factually for orientation only — never as recommendations. Confirm current terms with the provider, the FSA, or a qualified professional, and do your own research.

Part of our complete guide to investing in Japan.

What are you actually choosing between?

Almost every decision in a Japanese fund menu collapses into four questions:

  1. Index or active? An index fund mechanically tracks a published benchmark and charges little. An active fund pays a manager to pick holdings and charges more for the attempt.
  2. What does it hold? Equities, bonds, REITs — or a pre-mixed "balanced" fund that holds several at once.
  3. Which market? Japan only, the US only, developed markets, or the whole world including emerging markets.
  4. Hedged or unhedged? Whether the fund neutralises the yen's movements against foreign currencies, or leaves you exposed to them.

Everything else — the fund's brand, its recent performance chart, the marketing sheet — is noise by comparison. The three that actually move your outcome over decades are cost, coverage, and currency, so the rest of this guide takes them in turn.

How do you tell a cheap fund from an expensive one?

Look for the trust fee (信託報酬, shintaku hōshū) — the annual percentage the fund company deducts from the fund's assets every day. It is not billed to you; it comes out quietly of the price, which is precisely why people ignore it.

Japan's Financial Services Agency caps the trust fee on any fund allowed into the NISA accumulation quota (つみたて投資枠). The statutory ceilings are:

Fund type Maximum annual trust fee (excl. consumption tax)
Designated index fund, domestic assets 0.5%
Designated index fund, foreign or mixed assets 0.75%
Active fund, domestic assets 1.0%
Active fund, foreign assets 1.5%
Listed ETFs 0.25%

Those are ceilings, not typical prices. In practice the funds on the list run far below them: on the FSA's July 2026 list, domestic-investing index funds averaged 0.27% and foreign or mixed index funds averaged 0.34% — both excluding consumption tax. The cheapest global index funds are advertised well under 0.1%.

Three practical notes. First, watch which tax basis you're comparing: the FSA's caps and averages are quoted excluding consumption tax, while the headline fee on a broker's fund page usually includes it, so the same fund looks about 10% more expensive there. Second, the trust fee is not the whole cost — annual reports disclose a "real cost" (実質コスト) that also includes audit fees and trading expenses, usually a little above the headline figure. Third, a difference that looks trivial is not: on a portfolio compounding for thirty years, a full percentage point of annual fee is a large share of your final balance. Cost is the one variable in investing you get to choose with certainty.

Why does the FSA's screened list make this easier?

Because it removes the products most likely to hurt a beginner. To be admitted to the accumulation quota, a fund must clear a set of conditions, not just a fee cap:

As of the FSA's 24 July 2026 list that leaves 360 funds on the accumulation list — out of the many thousands sold in Japan. That is the shortlist, and it is public.

The growth quota (成長投資枠) is a much wider door. It excludes only a narrow set — stocks designated for delisting or under delisting supervision, funds with trust periods under 20 years, monthly-distribution funds, and certain derivative-based funds — which means most of what it permits has never been screened for cost at all. The growth quota is useful once you know what you're doing; it is not where a first fund should be chosen. For how both quotas are set to change, see NISA changes 2026–2027 for foreigners.

Should you buy a global fund, a US fund, or a Japan fund?

This is the choice most people agonise over, so it helps to look at what a global index actually contains. In the MSCI ACWI index — a standard "whole world" equity benchmark — the country weights as of 30 June 2026 were roughly:

Three things follow.

A global fund is already mostly American. The gap between a world index fund and a US index fund is smaller than the marketing implies — the world fund adds roughly a third of its weight outside the US, in exchange for accepting whatever the US does. Choosing between them is a judgement about future concentration, not about diversification in the abstract.

A Japan-only fund is a big bet. Japan is about one-twentieth of world equity value. Holding a Japan-only fund because you live in Japan means voluntarily concentrating in 5% of the market — the classic home-country bias. That's a defensible choice if it's deliberate; it's an expensive accident if it isn't.

You may already have Japan exposure you didn't buy. Your salary is in yen, your public pension accrues in yen, and if you own property here that's a yen asset too. Estimate the pension side with the free Japan Pension Estimator before deciding you need even more of Japan in your portfolio.

Do you need a currency-hedged fund?

Many Japanese funds come in two versions: 為替ヘッジあり (hedged) and 為替ヘッジなし (unhedged). The unhedged version leaves your foreign holdings exposed to the yen — if the yen weakens, your foreign assets are worth more in yen, and vice versa.

Hedging is not free. Its rough annual cost tracks the short-term interest-rate gap between the two currencies. Right now that gap is wide: the Bank of Japan's policy rate has been around 1.0% since June 2026, while the US federal funds target range is 3.50–3.75%. Hedging US assets back into yen therefore costs roughly 2.5–2.75 percentage points a year — a drag that compounds against you, and one that changes as central banks move.

The question that actually decides it is: in which currency will you spend this money?

If you're a cross-border household weighing exactly this, FIRE in Japan: NISA, currency and retirement planning works through the currency question in the context of a full retirement plan.

Why is your iDeCo menu so much shorter?

Because it's legally capped. Japan's defined-contribution pension rules limit the number of investment options a plan may offer to 35 — a cap introduced in the 2018 DC-law reform, with a five-year transition for plans that already exceeded it. So your iDeCo menu is not the market; it's a pre-selected slice of it, chosen by whichever provider you signed up with.

Practical consequences:

What should you avoid?

Not because these products are illegitimate, but because they solve problems a long-term accumulator doesn't have:

One foreigner-specific warning: US citizens and green-card holders

If you are a US person for tax purposes, get professional advice before buying Japanese-domiciled funds. Under US rules, a non-US corporation is a passive foreign investment company (PFIC) if 75% or more of its gross income is passive, or if at least 50% of its assets (by average percentage) produce passive income or are held for the production of passive income — a description that fits many pooled investment vehicles. PFIC shareholders generally face punitive tax treatment and annual Form 8621 reporting, subject to limited de minimis exceptions. This is a genuine and expensive trap, and it is specific to US persons; other nationalities are generally unaffected. Confirm your own position with a cross-border tax professional.

How this fits your plan

The fund you choose matters less than the amount you invest and how long you leave it alone. Work out how much you can genuinely commit each month with how much of your Japan paycheck can go toward FI and the free Japan Salary Tax Calculator — then model what consistent monthly investing does to your financial-independence date in the PlanTogetherFI calculator.

PlanTogetherFI is for educational planning only. It is not financial, tax, legal, or investment advice. Investing involves risk, including possible loss of principal. Funds, index families, and providers are named factually, not recommended. Fee caps, eligible-product lists, interest rates, and index weights change — confirm current figures with the FSA, the provider, or a qualified professional.

Frequently Asked Questions

What should I actually buy inside my NISA?

Most long-term investors in Japan hold a single broadly diversified, low-cost equity index fund and buy it automatically each month. Start from the FSA's accumulation-quota list — 360 funds as of July 2026, all screened for fees, no sales or redemption commission, and long trust periods. The specific fund matters far less than cost, breadth, and consistency.

What is a good trust fee (信託報酬) in Japan?

Index funds on the FSA's accumulation list averaged 0.27% for domestic assets and 0.34% for foreign or mixed assets as of July 2026, and the cheapest global index funds are advertised well under 0.1%. Statutory ceilings are higher — 0.5% and 0.75% for index funds, 1.0% and 1.5% for active funds — so the cap is not the benchmark. Note that the FSA's figures exclude consumption tax while broker-quoted fees usually include it.

Should I choose a global fund or an S&P 500 fund?

They overlap more than most people expect: the US is roughly 64% of a standard global index, so a world fund is already predominantly American. The world fund adds around a third of its weight outside the US; the US fund concentrates. That's a judgement about future concentration, not a diversification question with one right answer.

Should I pick the currency-hedged version of a fund?

The rough annual cost of hedging tracks the short-term interest-rate gap between the currencies — currently around 2.5–2.75 points between the yen and the US dollar, since the BOJ's policy rate is about 1.0% and the US federal funds target range is 3.50–3.75%. The deciding question is which currency you'll eventually spend. If you may leave Japan, unhedged foreign assets can actually be the lower-risk position.

Why does my iDeCo have so few funds compared with my NISA?

Because DC pension rules cap a plan's menu at 35 investment options, so your provider pre-selects a slice of the market for you. That makes it worth comparing menus before you choose an iDeCo provider. Within whatever menu you're given, the same principle applies: pick the cheapest broadly diversified fund available.

Is it bad to hold a Japan-only fund if I live in Japan?

Not inherently, but be deliberate about it. Japan is about 5% of global equity value, so a Japan-only fund is a concentrated bet — and you likely already hold substantial yen exposure through your salary, your public pension, and any property. Deliberate concentration is a strategy; accidental concentration is a risk you didn't price.

Sources and further reading

Figures reflect official sources as of August 2026 and change over time — fee caps and eligible-fund lists are revised by the FSA, interest rates by central banks, and index weights continuously. Always confirm current values before acting.