Nabil Balance fund and SIGS 1- one of the costly mutual funds; It’s really a high time for SEBON to reduce operating expenses including fund manager, depository and brokerage commission cost of mutual fund
- ShareSansar, September 4, 2017 on Exclusive , Featured , Stock Market
Mutual Fund is a pool of fund generally of several small investors. The collected fund is then invested in financial instruments such as Stocks, Bond/Debentures, Govt. Securities, and Fixed Deposits (as prescribed by Mutual Fund Regulation, 2067). Such investment decisions are made by a Fund Manager and supervise by the fund supervisors. Returns from the investment are shared proportionately among the investors on the basis of the units held by them.
Mutual Fund in Nepal is regulated by Securities Board of Nepal (SEBON). Mutual Fund in Nepal are issued, supervised and managed only by entities/individuals fulfilling the criteria led in Mutual Fund Regulation, 2067 and as authorized by SEBON.
Within the short time of its inception, Mutual Fund proved to be one of the most lucrative investments for small and risks avert investors of Nepal. Mutual fund has already become one of the best alternatives for investment and also they are providing healthy return each year from its establishment.
No doubt there are many benefits of mutual fund investment and also mutual fund are getting tax subsidies, fixed shares are reserved for them at the time of IPO which in turn helping to increase mutual fund investors wealth.
Beside the brokerage commission they pay on buying and selling shares there are many expenses related to operation of mutual fund. Major expenses are made on the heading of application and registration fee for obtaining license from SEBON, license fee and renewal fee for fund manager and depository, approval fee for operating scheme and IPO issue expenses. These all are initial expenses which are paid to SEBON and to merchant bank for issuing IPO to general public.
Others major expenses for mutual fund include fund manager and depository fee and also fund supervisor fee which together is almost 95% of regular yearly expenses. Beside these major expenses, there are other normal and small expenses like audit fee, publication expenses, NESPE listing fee, fund supervision meeting fees and many more. These all costs are making mutual fund too costly and major chunk of revenue are being used to cover the expenses.
Below table shows the total yearly expenses of each mutual fund and also the (%) expenses in relation with fund size.
Nabil Balance Fund 1 and Siddhartha Investment Growth Scheme 1 is one of the costly mutual funds and their yearly expenses are 4.73% and 4.46% of total fund size respectively. We can clearly see from the above table that major chunk of money of all mutual fund are spent to cover their different operating expenses.
We need to realize the fact that still mutual fund are not able to attract the mass individual investors. Most of the mutual fund units are subscribed by institutional investors like the commercial banks, insurance companies and other investment companies at the time of first issues. One of the major reason individual investors are not attracted could be the cost associated with mutual fund investment.
So it’s really high time for concerned authorities like SEBON to make long term plan and strategy to attract individual retails investors and also lower the operating cost of mutual fund in coming days. SEBON should also reduce the brokerage cost for mutual fund transaction. Unlike individual’s investors, mutual funds yearly turnover is very high so why not different reduced brokerage commission for them?
This move will help to curve the fee charged by merchant bank (fund manager and depository) to mutual fund and reduce brokerage commission will help lowered trading cost.
Until and unless the mass individual retails investors are not attracted toward mutual fund investments the future of mutual fund in Nepal will be in great risk and growth is uncertain.
- Sandeep Bikram Rana