Mutual funds: How far have they come?

The history of mutual fund in Nepal dates back to 2050 BS when Nepal Industrial Corporation introduced NCM mutual fund. Although mutual funds have traveled 25 years of journey in Nepal, these funds have not been widely accepted by the individual investors. Nepalese investors perceive mutual funds as market makers rather than institutional investors.  In the recent years, the mutual funds have put in most of their funds into the bank rather than NEPSE. The stock market has been going down since last few years and mutual funds have adopted bank as the safe heaven as of now.

There are currently 13 mutual fund schemes operating in the industry by 9 mutual funds. These mutual funds are of close ended nature. Close ended mutual funds raise its capital through Initial Public Offering, gets listed on NEPSE and is traded as a regular share. However, close ended mutual fund is itself a basket of diversified stocks. Nepalese mutual funds have not launched any open ended mutual funds because of the absence of volume of transaction in NEPSE.

Nepalese mutual funds have a maturity period of around 5 to 10 years. Nine out of thirteen mutual fund schemes have maturity period of 7 years. Similarly, the size of Nepalese mutual funds ranges from 5 crore units to 15 crore units.

Two of the mutual funds: NMB Sulav Fund and Laxmi Value Fund are near to their maturity. These mutual funds will expire in the year of 2076. The number of new mutual fund schemes was increasing till the year of 2074. However, no new mutual funds were brought in in the year of 2075. In 2071, four new mutual funds got listed. Those are NMB Sulav Fund, Laxmi Value Fund, Siddhartha Equity Oriented Scheme and NIBL Sambridha Fund. Similarly, in 2072, Global IME Sammunat Yojana got listed. In 2073, three mutual funds such as NMB Hybrid Fund, NIBL Pragati Fund and Nabil Equity Fund got listed. In 2074, Citizen Mutual Fund, Laxmi Equity Fund, Siddhartha Equity Fund, Sanima Equity Fund and NIC Asia Growth Fund were listed.  Prior to these newly listed mutual funds schemes, schemes such as SIGS-1, NBF-1, have already expired.

Nine of the major commercial banks sponsor banks of these mutual funds. These banks are NMB Bank limited, Laxmi Bank Limited, Siddhartha Bank Limited, Citizens International Bank Limited, Nepal Investment Bank Limited, Sanima Bank Limited, NIC Asia Bank Limited, Global IME Bank Limited and Nabil Bank Limited.

The mutual funds have a total of Rs 3.20 arba of unused funds in their bank balance as of Mangsir, 2075. Since the commercial banks are offering higher interest rates, mutual funds are in benefit when they deposit their investment in banks rather than invest in NEPSE.

The NAV of these funds are in a declining ratio. The highest NAV, eight months ago was Rs 13.82 per share.  As of Mangsir, 2075, the highest NAV is Rs 10.83. The least NAV, eight months ago, was Rs 9.13 as of Baisakh, 2075 whereas as of Mangsir, 2075, the least NAV is Rs 8.03.

The upcoming year will provide further reflection on how merchant banks will undertake mutual funds. The ongoing bearish trend in NEPSE on one hand and the introduction of online trading system have shown mixed reaction from individual investors. However, how will institutional investors take these events at NEPSE is yet to be seen.