Do Nepalese investors really want to change their investment taste with other investment option?

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Fri, May 10, 2019 3:16 PM on Exclusive, Experts Speak, Latest, Mutual Fund, Stock Market,
Do Nepales...

Mutual Funds: a fruitful investment option

--BY POSKAR BASNET (NIBL Ace Capital)

Are you one of the Nepalese investors who really wants to change your investment taste with other investment option? Are you looking to begin your investment journey with the best investment option? If your answer is yes, then a fruitful investment option is currently available in Nepalese Capital Market with a huge potential but the proper development and expansion of the sector is still required.

Globally, Mutual Funds are an attractive and fruitful option in terms of investment and savings. In today’s volatile financial market, Mutual Funds provide professionally managed, safe, and less risky option for investment to the investors, that’s why the Mutual Funds are an attractive and most invested and trusted option of investment all over the world's economy.

But in Nepalese economy, Mutual Funds are relatively new and less known investment option. When we talk about the long term savings and retirement plans, only few options that come into our mind are Employees Provident Fund, Citizen Investment Trust, Life Insurance Policies, Fixed Deposits, etc. Likewise, when we talk about investments of our savings, we just think about investment in securities, purchase of gold, purchase of land, saving deposits, etc.

However, various issues are yet to be addressed by the concerned authorities, stakeholders, investors, fund managers, etc. to enlarge the scope of Mutual funds so that funds could be considered as one of the most fruitful option by the Nepalese Investors.

Let’s talk about one of the best investment option to start a long investment journey in Nepalese capital market and the various factors that must be required to expand the sector.

Current Update of Mutual Funds in Nepal:

Currently, 13 Mutual Fund Schemes are operating in Nepalese capital market and two Mutual Fund Schemes have recently matured. These schemes are managed by fund managers licensed by Securities Board of Nepal (all are subsidiary companies of ‘A’ class commercial banks) and sponsored by banks (‘A’ class commercial banks licensed by Nepal Rastra Bank). All matured and existing schemes are close ended in type of mutual funds but one scheme, i.e. Citizen Unit Scheme managing by Citizen Investment Trust (CIT), is operating under investment trust concept and all the schemes are regulated by SEBON. However, the mutual funds market started a decade ago but the pace of expansion and growth of the market is very slow.

 Mutual Funds can play the vital role for the development of the capital market and increase the participation of the retail investors in the market.

The Regulator of Securities & Commodities market, Securities Board of Nepal (SEBON), have issued Mutual Fund Regulations 2067 under Securities Act 2063 and Mutual Fund Guidelines 2069 to regulate all the mutual fund schemes in Nepal. Two concepts of Mutual Funds have been defined in regulatory provisions i.e. Open Ended and Close Ended Schemes.

The Mutual Fund Regulations 2067 has defined in sub-section (g) of section 2 that “Open Ended Scheme” means a scheme which is operated without specifying any duration for redemption. Such kinds of schemes are not available in Nepal.

But, with a determination to lead the industry and be pioneer to develop innovative financial product in the Nepalese capital market, NIBL Ace Capital Limited has taken initiation to start an open ended scheme under NIBL Mutual Fund. The scheme is named as “NIBL Sahabhagita Fund” and recently got the final approval from the apex authority i.e. SEBON to operate the scheme in the market. Approval and operation of such scheme has taken as a milestone in capital market of Nepal and as starting of another era in the Mutual Funds industry.

Likewise, same regulation has defined in sub-section (h) of section 2 that “Close Ended Scheme” means a scheme which is operated specifying the period of maturity. A number of such kind of schemes are available right now in Nepal and investors can buy or sell units through brokers at market price like other public securities traded in secondary market.

Mutual Fund Schemes in Nepal

Data as on 7th May, 2019:

Name of Schemes

Fund Managers

Fund Size

Type of Mutual Fund

Current Status

Siddhartha Investment Growth Scheme-1

Siddhartha Capital Ltd.

500 Million

Close Ended (with 5 Years Maturity Period)

Matured

Nabil Balanced Fund-1

Nabil Investment Banking Ltd.

750 Million

Close Ended (with 5 Years Maturity Period)

Matured

NIBL Samriddhi Fund-1

NIBL Ace Capital Ltd.

1 Billion

Close Ended (with 7 Years Maturity Period)

Running

NIBL Pragati Fund

NIBL Ace Capital Ltd.

750 Million

Close Ended (with 7 Years Maturity Period)

Running

Laxmi Value Fund-1

Laxmi Capital Market Ltd.

500 Million

Close Ended (with 5 Years Maturity Period)

Running

Siddhartha Equity Oriented Scheme

Siddhartha Capital Ltd.

1 Billion

Close Ended (with 5 Years Maturity Period)

Running

Siddhartha Equity Fund

Siddhartha Capital Ltd.

1.5 Billion

Close Ended (with 10 Years Maturity Period)

Running

NMB Sulav Investment Fund-1

NMB Capital Ltd.

750 Million

Close Ended (with 5 Years Maturity Period)

Running

NMB Hybrid Fund L-1

NMB Capital Ltd.

1 Billion

Close Ended (with 5 Years Maturity Period)

Running

Global IME Sammunat Scheme-1

Global IME Capital Ltd.

1 Billion

Close Ended (with 5 Years Maturity Period)

Running

Nabil Equity Fund

Nabil Investment Banking Ltd.

1.25 Billion

Close Ended (with 7 Years Maturity Period)

Running

Sanima Equity Fund

Sanima Capital Ltd.

1.3 Billion

Close Ended (with 7 Years Maturity Period)

Running

NIC Asia Growth Fund

NIC Asia Capital Ltd.

835.2 Million

Close Ended (with 7 Years Maturity Period)

Running

Citizen Mutual Fund-1

CBIL Capital Ltd.

820 Million

Close Ended (with 7 Years Maturity Period)

Running

Citizen Unit Scheme

Citizen Investment Trust (CIT)

N\A

Under Investment Trust Concept

Running

             

Source: Securities Board of Nepal (SEBON)

Mutual Fund Schemes in pipeline

Data as on 7th May, 2019

Name of Schemes

Fund Managers

Fund Size

Type of Mutual Fund

Current Status

Nabil Balanced Fund-2

Nabil Investment Banking Ltd.

1.2 Billion

Close Ended Scheme

Approved and NFO* running

NIBL Sahabhagita Fund

NIBL Ace Capital Ltd.

500 Million

Open Ended Scheme

Approved but not yet floated

Citizens Mutual Fund-II

CBIL Capital Ltd.

1 Billion

Close Ended Scheme

Approved but not yet floated

NMB-50

NMB Capital Ltd.

1.2 Billion

Close Ended Scheme

Preliminary reviewed and comment sent

Global IME Balanced Fund-1

Global IME Capital Ltd.

1.2 Billion

Close Ended Scheme

Under preliminary review of SEBON

NIC Asia Balance Fund

NIC Asia Capital Ltd.

1.25 Billion

Close Ended Scheme

Under preliminary review of SEBON

Siddhartha Investment Growth Scheme-2

Siddhartha Capital Ltd.

1.4 Billion

Close Ended Scheme

Under preliminary review of SEBON

*NFO- New Fund Offerings                                                       Source: Securities Board of Nepal (SEBON)

In the context the regulator is working to expand scope and access of the market all over the country. Fund Management companies are much more enthusiastic to develop innovative schemes; investors demand verities of investment option so that they can optimize their return. On the contrary, growth or expansion of mutual fund market is exhibiting sluggish movement.

Then, what should be done by regulator, fund management companies and investors on their own parts?

Role of Mutual Funds for development of Capital Market in Nepal:

A key reason for encouraging the development of mutual funds is that they mobilize the savings (which might remain in bank deposits)of small investors (who couldn’t be involved due to many reasons) into capital markets and provide a source of long term financing for public companies in Nepal.

As simple as that Mutual Fund companies (professionally managed) sell the units to the investors who have common financial goals, pools money to create a Fund, and use them to invest in securities, bonds, debentures, treasury bills, commodity markets, money market instruments, etc. and returns generated from the investment (with good fund management) pays back to the investors.

Mutual Fund Schemes are a regulated sector of investment in Nepal and regulated in accordance with different regulations, policies and guidelines which have been formed by SEBON. In accordance with proper regulations and effective supervisions, Mutual Funds can attract and protect the common financial interest & rights of investors from different geographic area in Nepal. Mutual Funds can play the incredible role to increase participation of maximum number of retail investors with respect to create individual interest in capital market. As Mutual Funds are an easily understandable investment option and the Nepalese investors with limited knowledge, time or money or beyond the reach can indirectly participate them in capital market and allow them to get high benefits in their investments.

SEBON- Time to emerge the Mutual Funds as Nepal’s top investment sector:

If we look into the development of capital markets in past five years, we found revolutionary policy level development especially in primary market and also shown a promising picture for continuous development of overall capital market in future. SEBON- regulator of securities and commodities market has amended and adopted new regulations and guidelines related to securities and commodities market, at present, the regulator has created more technology and investors friendly environments in the market. In this context, we can say there are more possibilities of developing the transparent, investor’s friendly, safe and secure investment platform in the future.

"Even after almost a decade of formation of Mutual Fund Regulation in Nepal, the same types of mutual fund schemes (i.e. Close Ended) are available in the market."

 

Even after almost a decade of formation of Mutual Fund Regulation in Nepal, the same types of mutual fund schemes (i.e. Close Ended) are available in the market. But various other types of mutual fund schemes (i.e. Open Ended) are also available in the global market that also can be suitable for the Nepalese market and can be introduced to facilitate the alternative investment option. However, as regulator, SEBON has an important role to emerge the Mutual Funds as Nepal’s top investment sector.

Now, by looking at scope for improving other types of schemes, it’s time to take one step ahead by SEBON for another revolutionary development in mutual funds sector as a part of Nepalese capital market. Another part of the mutual fund management, fund managers are restricted by the regulator in relation to allocate the funds with limitations and this kind of restriction are also adopted globally but now, SEBON should provide other investment instruments like; commodities, option, derivatives, debts instruments, etc. to invest for diversification the mutual funds portfolio.

The existing fund managers in Nepal are the subsidiary companies of well-known commercial banks and they have good governance practices, advance information & technology systems, professional & competitive human resources, customer based services, good infrastructure, etc. In this regards, the role of fund managers can be supportive to the regulator for the development of mutual funds market in Nepal.

Hence, the regulator should encourage the fund managers to develop and introduce new types of schemes and regulates them with providing more diversified investment options.

Fund Managers- Get ready for a step ahead with different Mutual Fund Schemes:

"NIBL Ace Capital Ltd. (the fund manager) has applied for open ended scheme named “NIBL Sahabhagita Fund” for the first time which has recently got the final approval from the SEBON to operate the scheme in the market."

At the present scenario of the mutual funds in Nepal, all the fund managers have introduced Close Ended schemes in the market and it has shown that they are also willing to launch same type of mutual fund schemes in future. Whatever the reason but now the fund managers should have to get ready for a step ahead with different type of mutual fund schemes in Nepal.

A number of different types of schemes are operating in global markets and also in Nepal, the fund managers should think about to introduce other type of schemes. All available schemes are Close Ended type of funds and under which the fund managers have developed equity oriented fund (that invests in equity only) and hybrid funds (that invests in equity, debts and money market instruments) as per the objectives of the funds.

The fund managers can develop another type of mutual funds i.e. Open Ended which has categorized as per structure and under which different schemes can be introduced as per the objectives of the funds like; sector funds, debt funds, equity oriented, money market fund, fixed income funds, etc. NIBL Ace Capital Ltd. (the fund manager) has applied for open ended scheme named “NIBL Sahabhagita Fund” for the first time in Nepal which has recently got the final approval from the SEBON to operate the scheme in the market. The regulator has showed the green signal and welcomed for innovative and new concept of mutual funds in the market.

Hence, it’s time to take initiation to introduce various types of new schemes based on specific target group of investors by fund managers and also, the regulator should continuously encourage them to develop such new concepts of mutual fund for the development and expansion of the sector.

Investors- Grab the opportunity to make investment fruitful:

Investors who have limited time, money or knowledge and want to invest their savings in stock market then mutual funds are currently available in Nepalese market. Let’s hope other type of schemes will be available soon in the market and investors will grab the opportunity to make their investment fruitful. The fund managers and the regulator will be able to provide fruitful investment option in the market with new added feature of mutual funds in near future.