Nepal's Mutual Funds: Safe and Profitable Investments in the Stock Market

Nepal's Mutual Funds: Safe and Profitable Investments in the Stock Market

A mutual fund is a mechanism that pools money from many small and institutional investors to invest in stocks, bonds, and other securities. It is managed and operated by an investment manager. This pooled money from numerous investors is known as a collective investment fund.

According to the Collective Investment Fund Regulations 2067 and the Collective Investment Fund Directives 2069, the Securities Board of Nepal (SEBON) regulates mutual funds. All legal provisions, government and regulatory body directives issued for starting a scheme, are followed.

The fund aims to make money by collecting funds from a large number of investors and investing these collected funds in equities, bonds, and other securities. Investors receive share units based on their investment in the fund. The face value of each share unit is Rs. 10. The net asset value (NAV) of the fund is calculated based on its assets and the profit earned, which is then distributed to investors in proportion to the number of shares purchased, after deducting the fund's operating costs and commissions.

Investing directly in company shares or mutual funds can build wealth. However, direct investment in shares involves comparatively higher risks, and monitoring the fluctuations of stocks listed on the Nepal Stock Exchange (NEPSE) and selecting a few good stocks from hundreds can be a significant challenge for individual investors.

To mitigate the risks associated with individual investments, mutual funds use expert fund managers to select securities. These managers monitor and analyze the cost-benefit of hundreds of securities listed on the stock exchange, and this monitoring and analysis can result in higher returns for mutual funds.

In this guide, we will discuss mutual funds and help you understand and invest in them effectively.

Qualifications for Establishing a Collective Investment Fund:

Organized financial institutions, insurance companies, or non-banking financial institutions established under a special act can establish a collective investment fund. The promoter's paid-up capital must be at least two billion rupees. The company must have completed five years of business operations and made a profit for the last three consecutive years. The regulations also stipulate that net worth should not be less than paid-up capital, directors or executive heads should not have been convicted of fraud, embezzlement, or any crime involving moral turpitude, and should not be on the blacklist of the Credit Information Center or any regulatory body.

Only institutions that meet these qualifications can apply to the Securities Board of Nepal to establish a collective investment fund.

Benefits of Mutual Funds:

Mutual funds invest the collected money from various investors in stocks, bonds, and other securities. This type of diversification helps to minimize the risks associated with asset investments. It reduces the impact of risks associated with individual or single investments and helps ensure continuous returns.

Mutual funds are operated by experienced fund managers who make investment decisions on behalf of the investors. Professionals actively manage the portfolio by analyzing companies, researching, and evaluating market trends to maximize returns within the investment objectives.

Mutual fund shares can be easily bought and sold on any trading day based on the net asset value (NAV). This provides liquidity to investors, and mutual funds can be converted into cash when needed.

Mutual funds or collective investment funds are regulated by regulatory bodies such as the Securities Board of Nepal (SEBON) and the Nepal Stock Exchange (NEPSE). Regulation helps ensure transparency, investor protection, and compliance with the standards of collective investment funds.

Investing in mutual funds is easy because financial experts, auditors, and fundamental and technical experts within the fund make daily investment decisions. This frees investors from the hassle of continuous monitoring and decision-making, saving their time for other businesses or employment.

Most mutual funds offer Systematic Investment Plans (SIPs), allowing investors to contribute a fixed amount regularly and benefit from compounding over time.

Mutual funds can be categorized based on investment sectors such as equity funds, bond funds, money market funds, and hybrid funds. This variety helps investors select funds that align with their risk tolerance, investment goals, and timelines.

Mutual funds regularly update their holdings, performance, and expenses. Investors can easily track their investments and make informed decisions based on the available information.

At the end of each month, mutual funds publish their NAV, and they also disclose the stocks or other investment sources they have purchased. Based on these published details, general investors can make investment decisions by purchasing the same stocks.

Mutual funds can provide investors with financial security as well as profitable returns. The development of mutual funds in Nepal will offer new opportunities for investors and play a significant role in the growth of the capital market in Nepal.