Nowadays, many people are showing interest in the share markets and have started investing in mutual funds. If you have just stepped into the share market, then you must have plenty of queries. Now, you are just a few minutes away from getting all the information about mutual funds, how they work, mutual funds that you can invest in Nepal, and many more. So, keep reading.
What is Mutual Fund?
In simple words, a mutual fund is a business or firm that pools money from people who are willing to invest and utilize that money in stocks, bonds, and other assets. Some of these stocks, bonds, and assets are known as the portfolio of a company or a shareholder.
Different companies allot a share for the public, and shareholders can purchase according to their interests. The units bought by stakeholders denote the share they hold on that fund. The Net Asset Value (NAV) plays an important role in mutual funds, and the purchase and sale of share units completely depend on it. According to the fund’s ownership, these NAVs change over time. As a result, the fund’s profits and losses are equally distributed to every shareholder.
Types of Mutual Fund
There are basically two types of Mutual Fund. Open-ended Mutual Fund and Close-ended Mutual Fund. We will discuss these two mutual funds in detail.
1) Open-ended Mutual Fund
As the name implies, open-ended mutual funds do not have fixed capital because they lack maturity duration. Buying and selling of such funds completely depend on Net Asset Value (NAV). Therefore, price varies daily based on NAV. The NAV value is measured by dividing the fund’s market value by the total number of shares held by shareholders. You can purchase and sell funds directly by issuing in the company or designated branch offices.
In open-end mutual funds, demand plays a huge role in its issue in the market. If the buyer wants to sell the fund, then it only can be purchased. So, you do not have to buy from prevailing stakeholders. Also, these are not enlisted in the secondary markets.
2) Close-ended Mutual Funds
In close-ended mutual funds, there is a fixed time duration for the maturity of funds. Therefore, there will be fixed capital assets or a fixed number of funds. After the maturity period, the mutual funds do not operate. So, these types of mutual funds end up selling all assets and collecting the money. The collected money is then distributed to the buyers who have invested in funds.
Close-ended mutual funds begin collecting funds from the general public through an initial public offering (IPO) to raise money. Once the target capital has been reached, the mutual fund will no longer buy and sell it. Here, demand and supply both play a vital role in the price determination of funds. So, it can exchange funds at higher or lower prices than the real worth of its holdings.
Close-ended mutual funds are listed in the secondary market to facilitate purchase and selling among investors. Most mutual funds are closed-ends in Nepal, and they have 7-10 years of maturity duration.
We can also classify mutual funds on the basis of investment philosophy into the following types:
- Fixed-income Funds
In bond funds, buyers invest their money on corporate or government bonds that can pay a fixed return. So, money will come regularly based on the interest earned by funds. They are safer to invest your money.
- Equity Funds
Equity funds invest in purchasing and selling of stocks. There are high chances of losing money as they aim to grow rapidly as compared to fixed-income funds. Some examples of equity funds are income funds, value stocks, large or small-cap stocks, etc.
Money Market Funds
Money market funds are the type of fixed income funds but have a short duration. So, there will be less return compared to the above fixed-income fund.
It is the combination of all the above funds. You can choose any based on the ability to take a risk.
- Specially Funds
Specially funds mainly focus on socially responsible funds and invest in companies that work to uplift the environment, nature, human rights, etc.
How Does Mutual Fund Work?
We hope till now you have got some basic ideas about mutual funds. Let’s deep dive into how mutual funds work?
Mutual funds will allow pooling money by investing in different funds or bonds. It provides plenty of investment options, and by proper selection, you can multiply your asset value.
Here, you will invest in portfolios that you would not afford alone because many investors are investing alongside you. Similarly, Mutual funds provide an opportunity to pick one fund containing different stocks among diverse options. Besides, mutual funds are managed by experts, so making them less risky for beginner investors.
Also, mutual funds give a better monetary return on your investment by following ways:
Through Capital Gain
Capital gain is obtained when you get a higher price for selling mutual funds compared to the price paid while purchasing. So, by investing in mutual funds, you can multiply your actual assets or capital. But, first, you need to be very careful while choosing fund schemes.
Increase of Share Price of a Fund
Share value can fluctuate frequently, but in many cases, fund prices tend to increase after some time. So, you can earn a high profit by selling the funds into secondary markets. For example, if you have purchased a share from company ‘X’ at Rs.100,000 after a six-month share value increases to Rs. 150,000, then you can earn a profit of Rs.50,000 by selling at that time.
Income Earning From Dividends
Many funds share dividends with their stakeholders who have invested in them. If your invested company is making a profit, you will get an equal share of the company’s profit. Thus, you can earn extra money.
Status of Mutual Fund in Nepal
The Nepali market facilitated the emergence of mutual funds for the first time with the launch of NCM Mutual Fund in 2050 B.S. (1993 A.D.). It was issued as an open-end fund by the NIDA capital market. It opened the door for mutual funds in Nepal.
In Nepal, Commercial banks first need approval from the Securities Board of Nepal (SEBON) before issuing mutual funds. Then only these banks will announce their issuance by initial public offering (IOP) and accept funds from the general public. After allotment of funds unit, they are registered in Nepal stock exchange (NEPSE). NEPSE is the only stock exchange market from where you can purchase and sell funds easily. Merchant bankers are now raising funds five to ten times larger, and they have become an important part of the Nepali stock market.
List of Mutual Funds in Nepal
In Nepal, most of the mutual funds are closed-end type. Let’s have a look at available mutual funds in Nepal.
Open-Ended mutual funds
- NIBL Sahabhagita Fund (NIBLSF)
- NIC Asia Dynamic Debt Fund
- Global IME Samunnat Scheme-1 (GIMES1)
- Nabil Equity Fund (NEF)
- NIBL Sambriddhi Fund-1 (NIBSF1)
- NMB Hybrid Fund L-1 (NMBHF1)
- NIBL Pragati Fund (NIBLPF)
- NIC Asia Growth Fund (NICGF)
- Laxmi Equity Fund (LEMF)
- Siddhartha Equity Fund (SEF)
- Citizens Mutual Fund-1 (CMF1)
- Sanima Equity Fund (SAEF)
- NMB 50 Fund (NMB50)
- Nabil Balanced Fund-2 (NBF2)
- Siddhartha Investment Growth Scheme – 2 (SIGS2)
- NIC Asia Balanced Fund (NICBF)
- Sunrise First Mutual Fund (SFMF)
- Citizens Mutual Fund-2 (CMF2)
- Kumari Equity Fund (KEF)
- Laxmi Unnati Kosh (LUK)
- Prabhu Select Fund (PSF)
- Sanima Large Cap Fund (SLCF)
- NIC Asia Select-30 (NICS30)
- NIBL Sambriddhi Fund-2 (NIBSF2)
- RBB Mutual Fund-1 (RBBMF1)
Already Matured Mutual Funds
- Siddhartha Investment Growth Scheme-1 (SIGS1)
- NMB Sulav Investment Fund-1 (NMBSF1)
- Nabil Balanced Fund-1 (NBF1)
- Laxmi Value Fund-1 (LVF1)
- Siddhartha Equity Oriented Scheme (SEOS)
Is Investing in Mutual Funds Safe?
Is it safe to invest money in mutual funds? Well, the answer is yes because mutual funds are regulated and managed by an expert team. So, the chances of losing your money become less.
Most importantly, mutual funds are focused on preserving money invested by the general public. So, they do not invest all the money in stocks. They allow a certain amount of money in safer alternative investments such as bonds, fixed deposits, and debentures.
Benefits of Investing in Mutual Fund in Nepal
If you are new to the investment field and wondering whether to invest or not, then first look at the benefits before jumping to any conclusions:
1) Mutual Funds Give a Better Return.
Investing in mutual funds offers you a higher return as compared to money deposited in the bank. The dividend will be greater than the normal saving interest giving a better return of the same money. So, you can increase money exponentially.
2) Easy Process and Anyone Can Invest.
You can purchase one single unit (Kitta) at just rupees 10, which is very low. So, anyone can invest, even with a very small amount, easier.
3) Safer Options
An experienced fund expert team regulates mutual funds, and they invest in different types of assets. Thus, it helps to minimize the risk and losses.
4) Accelerates Economic Development of a Country
Mutual funds collect money from general people and distribute funds in productive fields leading to the faster economic development of the country. A huge amount of money can be collected through funds, which otherwise would never be possible, enabling us to launch big projects in our country like Nepal.
How to Invest in Mutual Fund in Nepal
If you are thinking of investing in mutual funds, then you are in the right place. Let’s have a look at different ways that you can invest in mutual funds in Nepal.
Initial Public Offering (IPO)
The initial public offering is the first process to collect money from the interested general public. Most importantly, you can purchase any upcoming fund schemes at a very affordable price. You can buy bonds or share at Rs.10 per unit. In many schemes, you have to buy a minimum of 10 unit shares worth Rs. 1000 but how much you are willing to invest matters the most. If there are enough applicants, then shares are allotted through a lottery system. This is the main disadvantage of this system. So, keep trying; who knows next time? You may be the lucky one!
Through NEPSE (Secondary Market)
If you are seriously willing to invest in mutual funds but tired of being not allotted through IPO, you can buy shares from secondary markets. In Nepal, mutual funds register themselves in NEPSE (Nepal Stock Exchange) after raising money through IPO. You can easily buy or sell funds through the secondary market. But, first, you need to create a broker account through a licensed broker.
Before investing in the secondary market, you should understand the company or funds you are willing to apply. If you have just stepped into the field of share markets, then you can begin with IPOs because they are safer.
By Purchasing Open-ended Schemes Directly From the Mutual Fund Manager
Open-ended mutual funds do not have maturity time, and they are not listed in NEPSE. So, you can purchase and sell these types of funds directly from mutual fund managers. In Nepal, there are few such mutual funds that you can invest in; NIBL Sahabhagita Fund (NIBLSF), the first open-ended mutual fund in Nepal, NIC Asia Dynamic Debt Fund, are a few examples of open-ended funds in Nepal.
Already Purchased Mutual Fund, What Next?
If you have already purchased mutual funds and wondering what to do next, then we are here to guide you.
First, make a proper plan and observe thoroughly if your share is making progress in the market or not. You can sell funds through the secondary market or can keep them until maturity time. It depends on you and the prevailing market up-downs. However, in many cases, the chances of getting higher profit are when you held funds till the maturity period. Planning and further action depend on the type of mutual investments that you have invested in or your portfolio.
I hope this article was fruitful for you!
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