Mutual funds seek less brokerage commission

KATHMANDU, JUNE 03:

In order to make mutual funds more appealing to investors, the capital market regulator — Securities Board of Nepal (Sebon) — is willing to provide some respite to mutual fund managing companies from exorbitant brokerage fees.

As mutual fund managers need to undertake numerous transactions in a day, brokerage commissions make up a substantial sum for the fund. The fund managers are asking Sebon for some kind of discount on the brokerage fees.

“Sebon is all for promoting mutual funds at present, so we will look into the issue and try to make mutual funds more appealing to investors,” said director of Sebon Niraj Giri. “However, mutual fund managers have to formally approach the regulator regarding what they exactly want,” he added.

For the upcoming budget, Sebon has also recommended Ministry of Finance to give tax concessions of a certain limit to mutual fund holders so that they become attractive instruments for investors. “As a mutual fund, we have to frequently buy and sell shares in our possession and brokerage fee becomes substantial,” said CEO of Siddhartha Capital — that manages Siddhartha Investment Growth Fund I — Dhurba Timilsina.

At present, the brokerage fee is distinguished in terms of kinds of securities that are traded and trading volume. According to regulation, for share trading, brokers can charge one per cent to 0.7 per cent of the amount traded as brokerage fee based on the volume. Likewise, for trading of bonds and debentures, brokers can charge between 0.2 per cent and 0.05 per cent as commission. Brokers can charge between 0.75 per cent and 0.40 per cent for instruments such as preference shares and mutual fund units. The larger the volume, the smaller is the commission for brokers.

Moreover, regulation has prohibited brokers from luring clients through any kind of financial incentive.

According to the prospectus of Nabil Balanced Fund I — the second mutual fund in existence — it is expected to be paying Rs 17.2 million in its five years to brokerage firms as commissions for transactions conducted. The sum is equivalent to 2.3 per cent of the fund’s initial size of Rs 750 million.

“If we have to pay less commission then the fund’s expenses will also go down, which means the fund can offer better returns to unit holders ultimately,” pointed out Timilsina. Siddhartha Investment Growth Fund I has equities worth Rs 403.4 million as of last week.

Likewise, Nabil Balanced Fund I — managed by Nabil Investment and Banking which is a subsidiary of Nabil Bank — also has stocks worth Rs 114.8 million in its portfolio. Mutual funds are subjected to higher frictional expenses — the overhead expenses incurred in brokerage commissions, and capital gain tax along with management fees in comparison to direct investment in the stock market.

However, its obvious benefit of being professionally managed and its inexpensive unit price makes it attractive for investors who do not have a lot of time, expertise or money to invest.

However, brokers are skeptical that allowing brokers to assign discounts on mutual funds will be a good idea.

“Sebon does not allow brokers to give discounts to customers at present to prevent any sort of influence in the market,” said president of Stock Brokers Association of Nepal Narendra Raj Sijapati.

At present, there are 58 brokers functioning at the stock exchange.

Source: THT