Reuters - The Japanese mutual funds market suffered an investment loss of $29 billion in January, the first fall in five months, but it posted solid net inflows with investments in equity funds reaching their largest amounts since August 2007.

Japanese retail investors shifted back to equity funds as a new tax-break facility dubbed NISA, for the Nippon Individual Savings Account, kicked off in January.

NISA is aimed at driving massive Japanese savings into stocks and mutual funds.

In December, investors had pulled out from equity funds as they collected proceeds from there ahead of a doubling of Japan's capital gains tax, which took effect from Jan. 1.

The country's tax on capital gains and dividends was raised to 20 percent from 10 percent at the start of January, as a special tax break given to support share prices expired.

Retail investors parked their proceeds in money reserve funds in December ahead of the launch of NISA. The Japanese government projects the tax-break accounts could draw more than $250 billion by 2020.

Nomura Research Institute's survey this week estimated the number of accounts in NISA could grow to 8.65 million by the end of the year.

Nomura expects the total investment amount in the NISA facility may reach 4.1 to 5.5 trillion yen this year.

Net inflows in equity mutual funds totalled 1.31 trillion yen ($12.8 billion) in January, a sharp reverse from net outflows of 573 billion yen, the Investment Trusts Association of Japan said.

Conversely, the money reserve fund saw the largest ever net outflow of 1.05 trillion yen in January, resulting in pushing down the overall value to 10.1 trillion yen from a record high of 11.2 trillion yen the previous month.

The overall asset value of the country's mutual funds market, which is the second largest in the Asia-Pacific region after Australia and the ninth largest in the world, fell 3.2 percent to 78.9 trillion yen in January.

The market suffered investment losses of 2.94 trillion yen in January after it hit 81.5 trillion yen at the end of December -- the highest since October 2007.