Mutual funds at Nepse undervalued

KATHMANDU:

Existing mutual funds at the stock exchange are undervalued, despite the ongoing bullish run of share prices.

The trading prices of both mutual funds — Siddhartha Investment Growth Scheme I (SIGS-I) and Nabil Balanced Fund I (NBF-I) — are below their Net Asset Values (NAV). NAV of SIGS-I stands at Rs 12.87 and that of NBF-I is at Rs 11.64 by mid-November. However, during that time SIGS-I was traded at Rs 11.25, while NBF-I was priced at Rs 9.8, which shows that Nepali mutual funds are undervalued by almost 14 per cent.

Even at present, SIGS-I and NBF-I closed at Rs 11.55 and Rs 10.29 at Nepse, respectively.

NAV of a mutual fund shows the real value of each unit of the mutual fund. Thus, the trading of the mutual fund units below the NAV at a discount rate means it is undervalued at the stock market.

“It is kind of surprising that investors are trading the mutual funds below its NAV even though share prices have increased substantially over recent times,” pointed out CEO of Siddhartha Capital — fund manager of SIGS-I — Dhurba Timilsina.

SIGS-I — a fund worth Rs 500 million — contains shares worth Rs 518.6 million and public issues worth Rs nine million in its portfolio as of mid-November. “Maybe it will take some time for investors to realise that along with the appreciation of share prices, value of mutual funds also go up, and then they will be ready to pay premium for the units,” he added.

The funds’ portfolio contains the same shares whose prices are growing at the stock market so the value of the mutual fund’s portfolio has appreciated but the units’ price is not increasing in a similar ratio. Over the last four months alone, Nepse index alone has appreciated by 30 per cent.

Mutual funds are supposed to be a perfect investment instrument for investors with a comparatively small risk-appetite and for the beginners. The fund managers pool funds from small investors and then invest the amount in diverse portfolios and sell the units to investors. Since mutual fund units are sold at a face value of Rs 10 per unit it is quite affordable for those low on funds as well.

“Short-term investors who were expecting instant returns in the form of dividends might have been disappointed,” pointed out CEO of Nabil Investment Banking — fund manager of NBF-I — Pravin Raman Parajuli.

According to him, regulatory ambiguity about whether dividends have to be distributed after one year of the mutual fund’s operation or right after the end of the first fiscal year has prevented Nabil Investment from declaring dividends. “We are hopeful that people will understand the concept of the mutual funds over a period of time and assess the performance of the fund and quote a fair price at stock exchange,” he added.

NBF-I has investment of Rs 511.9 million in equities and Rs 74.3 million in bonds by mid-November.

Source: THT