We are already in a position to give even better return to the investors now — within six months of operation.  

ShareSansar in talk with  Mr. Pravin Raman Parajuli, CEO, Nabil Investment Banking Limited:

 
Tell us something about Nabil Investment Banking Limited’s first mutual fund scheme named Nabil Balanced Fund 1 in brief?

Basically it is a balanced scheme, hence it is not hundred percent equity.  It is combination of debts and equity instruments. We can go up to 70 percent in equity and the remaining has to be fixed income securities.

It is a closed-end five-year scheme. The asset allotment on our part can differ as per the market scenario, depending on the fund manager’s decision making. Given the fact that we are only at the seventh month of operation, the scheme is performing better than we expected.

But your scheme’s NAV nudged to Rs 10.74 in Bhadra. But it still remains undervalued in the market which is below both the par and NAV. How do you explain that?

This question should be addressed to the investors rather than us. If it’s undervalued in the market it is largely due to the investors, most of whom look for short-term investment and fast, easy money.

Another problem is that our market is not mature for so many instruments. The investors are simply not aware or have a very low level of understanding about mutual fund schemes. They even expect immediate return from day one on five-year closed-plan, which is just not possible. If you expect a mutual fund to trade above par value immediately after it is listed for trading then it is a blunder. A mutual fund takes at least six months to one year to indicate it is heading to.

Besides, running the mutual fund, what are the other major activities Nabil Invest is into?

Since we are a merchant banker, we provide services such as issue management, portfolio management, underwriting, share registrar & corporate advisory services.   


Is there another mutual fund scheme in the offing by Nabil Invest in the near future? If yes, then how different it would be from the present one?

We are thinking of a different kind of scheme, though there is not much scope for a huge difference between the mutual fund schemes due to the nature of the market.  Up to 70 percent of the scrip is covered by the BFIs. Hence, we have to plan a scheme within this limitation. Most probably, our second scheme would be an equity scheme. But we are yet to decide on the size of the scheme, and when to launch it. Currently, we are focusing on to improve the performance of our first scheme so that the investors get to understand that the mutual fund provides a good investment opportunity.

What will be the size of the next scheme?

We are yet to decide that, too. It could be similar to the first scheme or a bit bigger than the existing one. But again, it will depend on the market scenario at that time. The election is round the corner, and so much hinges on the political situation of the country.

Could you give a tentative date for the next scheme?

Probably by the end of the third quarter, subject to the approval of the SEBON (Securities Board of Nepal).

More mutual fund providers are in the pipeline though the market is quite small. Why do you think that so many banks are eager to launch their mutual funds?

Everybody wants to launch an innovative product in the market. That is the logic behind the schemes.

But the real issue here is the challenges the schemes face in the market. One of the big challenges is that related to risk diversification for a fund manager like us.  The stock market is so much concentrated only on BFIs, and with it comes the risks associated with them. There are only a handful of real sector companies. Sectorial diversification is hardly possible. There are a very few insurance companies in the market. To sum up, fund manager do not have enough options to hedge the fund’s risk during gloomy times. This is the riskiest aspect of the market for any fund manager.

Hence, we have been urging the SEBON to bring in real sector companies with good corporate governance not just for our risk diversification but to protect the investment of the public. Ultimately the fund we mange comes from the money people invest with us.

If the SEBON does not take that initiative any time soon then it would eventually have to stop the issuance of new mutual funds.

Going by the normal market demand, our mutual fund is not fully invested though we are six months into operation. Frequently tradable, good stocks are not available in the real market scenario. Only 8 to 10 percent of the listed shares are being traded, and some of those shares, too, are problematic.

Therefore, we need to bring in the real sector, go to demat, and make an environment for frequent trade settlement, online trade settlement if we want the market to mature.

 

Are you satisfied with the level of cooperation from the government and the regulatory bodies when it comes to mutual funds?

It’s not that we are dissatisfied with the level of cooperation. We must applaud their initiatives. I’ll give an example, ever since the mutual funds were launched last year; we were urging the regulators to give tax exemption. We lobbied at the Ministry of Finance, the SEBON and all other authorities concerned. The way the issue was addressed in the budget introduced through the financial ordinance is truly laudable.  A very few of us were expecting that – though it did not provide for a tax exemption of Rs 40 to 50 thousand at the individual level, something which many expected.

At the same time, despite its willingness, SEBON, as the apex regulator of the capital market, have not been able to quickly carry out certain things like introducing and amending the regulation, supervision and adding new scope of operation due to its institutional capacity and other limitations.

We, as the stakeholders, want the SEBON’s capacity to enhance so that we can also grow with the market. Hence, our concern is the pace of the regulator.

What are the other hurdles to the growth of the market?

When will the CDS be implemented in a full-fledged manner? When will trading platform automation take place?  Things come in bits and pieces, and we find a bottleneck. Until and unless the government and the regulators do not approach these things in totality in a time bound manner, the investors cannot be confident about the market.

Another thing we need to address is investor education. We talked about the undervaluation of the mutual scheme in the market. If the NAV is lower than the market price then it is a wrong thing.  But a scheme has the right to face a certain premium.  Any scheme must be trading at the par with the NAV or above that. That’s a basic logic of investment.

As an investor why, do you think, should I put my money into your scheme when I have a growth and other attractive schemes offered by other bank. How do I stand to profit from your scheme?

First of all, you cannot put all investment bankers in one basket and then compare their schemes. You need to understand which organization is sponsoring the scheme, what are the background and the managerial strength of the fund managers, what is the asset allocated, how resourceful they are, and then comes your risk appetite.

There are only two mutual fund schemes in the market as of now, our balanced scheme and Siddhartha’s growth scheme.  You can’t compare a balanced scheme with a growth scheme since a growth scheme’s offers higher returns, but at higher risk.

To say more words about our strength, we are promoted by Nabil Bank, the leading bank of Nepal – we have put such a big brand at stake. And, most importantly, we do not go for short-term gains; we will continue to move professionally, and deliver on all the promises that we have made to our clients. As a matter of fact if you run the fund transparently, it will pay off in the long run.

In terms of overall investment banking service, we are in operation for three years.  If you look at the operational bottom-line last year, we are in number 1 in terms of profitability. In terms of manpower, we have among the best of experts in the field.  Also look at the quality of asset we are investing in. If any of our investors have any doubt, the management is in the position to completely justify the investment in this regard. That should give you fair idea where we are heading to.

There is a rumor in the market that the mutual fund companies are more of market destroyer than market maker. For instance, some investors complain that the mutual funds hurt the market by offloading the IPO allotted to them on day one. How do you take it?

I look at it from a different perspective. First of all, what we need to realize is that a mutual fund is never a market maker or a breaker. How does a mutual fund function? Why did 21 thousand people invest in our mutual fund? They invested in the mutual fund, trusting us, the fund manager.  We have certain obligation toward our investors.

As far as the issue of offloading is concerned, it has two facets. I could have either retained the shares or offloaded it. What if the price of shares I offloaded goes up? A fund manager takes a decision with an intention to optimize the returns for its investors. So there are both pros and cons. Investors usually hold a short-sighted approach to the issue.

Still, if a section of the investors feel that offloading of the shares by mutual funds in initial trading days is hurting them or the market, a provision which allows the mutual funds to offload the shares only after a week of trading, after the price stabilize could be implemented.

A certain sector of investors also alleges that the mutual funds also manipulate the price in the secondary market. What do you say?

I don’t think this is true. If any fund manager is pressing for manipulation of share prices in the secondary market, it is condemnable.  But it is perfectly ok to seek shares at minimal price in the market. That is what any buyer does.

Can your unit holders expect some sort of dividend from the profit you posted in the last fiscal year 2069/70?

By the end of the last fiscal year, our scheme was not even three months into operation. If we had pledged even a nominal return to the investors, it would have added to the cost of the scheme.

This year, however, we are in a position to give better return than we had projected and promised. Already its NAV stands at 11.33 percent.  We will give at around 13 percent returns, after deducting all the costs involved at the end of the first year—unless there is some unexpected and unprecedented movement in the market.


Apart from the returns from the scheme, is there any other bonus in the pipeline?

A mutual fund is not allowed to give bonus shares. Hence, it can only distribute cash dividend.  Though we had pledged 7 percent cash dividend from one year of operation, we are already in a position to give even better return to the investors now — within six months of operation.

 
Where do you see Nepal’s stock market six months down the line?

Well, there are so many factors on which the market depends on. I don’t see much reason for the market not to fair well. With the Constituent Assembly election is over, the country should get some stability. The performance of the listed companies does not look bad. We will get to know more about it after more companies publicize their first quarterly reports. Overall, the market seems to be heading in a positive direction.