Is it time to “peek” into neighbor’s house? What can Nepal learn from India’s stance on mutual funds?

-Puskar Shrestha

The condition of mutual funds in the Nepalese Stock Market has not met the expectations. Currently, there are 13 mutual funds in the stock market with a total fund size of 12.95 arba. Laxmi Capital, NIBL Capital, Siddhartha Capital, and NMB Capital have 2 each mutual fund in operation while Global IME Capital, Nabil Capital, Sanima Capital, Citizen Capital, and NIC Asia Capital have one each in operation.

Likewise, one each of Global IME Bank, Citizen Bank, NMB Bank, NIC Asia Bank, Nabil Bank, and Nepal Investment Bank mutual fund scheme is in Securities Board of Nepal (SEBON) pipeline status of total worth Rs 6.35 arba fund to be issued to the general public in near future.

Although the mutual funds are managed by the subsidiary companies of the commercial banks, investors have still not shown much interest in the funds.  The recently issued mutual funds managed by NIC Asia Capital and Citizen Capital have also gone unsubscribed.

What exactly is a mutual fund?

Referring to Investopedia, “Mutual Fund is an investment vehicle made up of a pool of money collected from many investors for the purpose of investing in securities such as stocks, bonds, money.” Mutual Funds can be an advantageous deal for the newcomers in the stock market. The main reason for it is the reduction of overall risk. An investors money is invested by the mutual funds in a variety of shares, bonds and other securities which diversifies the portfolio of the investors. Along with that, investment in mutual funds require less capital as compared to direct investment in the secondary market as a single unit of mutual fund costs Rs 10 at par. Not just that, passive investors can utilize mutual funds in the best way, as the fund will make the investment for them and they can enjoy their return without making any efforts

Despite all the advantages, especially for first-time investors and passive investors, mutual funds are not gaining the popularity that they should have.

What is the condition of mutual fund in India?

Currently, there are over 2,599 mutual funds in India while the number of Assets Management Companies only count to 44. Even this accounts only for about 4% of the total investments by individual investors in India. However, the role of both the government and the private sectors have been noteworthy for the development of mutual funds.

The continuously playing advertisements and the flexibility adopted by the regulatory body have contributed to the current situation of the mutual fund market in India. All the stones are being turned and efforts are being made for making the individual investors interested in the mutual funds and increasing the investment in various mutual fund schemes.

Indian Income Tax Act has a provision under section 80C providing relief in Investment in Equity Linked Saving Schemes or ELSS. ELSS are equity mutual fund schemes that invest in stocks. Section 80C allows maximum tax deduction up to Rs 1.50 lakh for income generated through such mutual funds.

Along with this, technology is being developed for enhancing the growth of mutual funds in the form of paperless transactions. One of the revolutionary steps in the Indian mutual fund industry might be the implementation of the sale of mutual funds through e-commerce enterprises. In 2016, the Securities Board of India (SEBI) had submitted its recommendation on allowing the online marketplaces like Amazon, Flipkart etc. to offer mutual funds on their platforms. The implementation of this recommendation could boost the Indian mutual fund market to newer heights.

Where has Nepal been lagging behind?

If we compare with the efforts made in the neighboring country, the areas where we lag behind might make a long list. Looking at the superficial side, lack of any kind of tax relief and lack of regulatory bodies can be listed on top of the chart. Any kind of tax relief has not been provided yet for the mutual fund which has kept the investors at bay. Along with that, no efforts have been made to promote mutual funds among investors.

It is most likely that almost all the commercial banks will come up with a merchant banking subsidiary and mutual fund scheme to follow. If the current situation remains the same for the mutual funds, then the problems for the upcoming schemes will only increase. The future of the mutual fund industry, currently, is quite foggy in Nepal and to make sunshine in the industry, collective effort of both regulatory bodies as well as private sectors is a must.