Mutual funds are one of the easiest ways to invest in Nepal, especially for people who do not actively track the share market. A mutual fund collects money from many investors and invests it in different financial tools like stocks, bonds, and bank deposits. The fund earns money through these investments, but the final return an investor receives is not the same as the total earnings of the fund. The remaining profit, after costs, changes the value of investor units, which becomes the return.
This article explains this difference clearly with real market changes seen in 2025.
How Mutual Funds Earn Money in Nepal
Mutual funds in Nepal earn income mainly in these ways:
Bank interest – Money kept in Fixed Deposits (FD) earns interest from banks.
Stock profit – Funds invest in shares. When share prices rise, the fund value increases.
Company dividends – Funds receive dividends from companies they hold shares in.
Bond interest – Investments in government and corporate bonds provide steady interest income.
All these earnings increase the fund’s total value, but investors only benefit from what remains after costs.
Earnings vs Investor Returns: What’s the Difference?
Fund earnings = The total money the mutual fund makes from interest, shares, and dividends.
Investor return = What remains after fees, management cost, and other expenses are removed.
This remaining amount increases or decreases the unit value of investors, shown through NAV (Net Asset Value).
Nepal Market Update in 2025 (Impact on NAV and Returns)
In October 2025, many changes affected Nepali mutual funds:
Nepal banks started lowering interest rates. This reduced income from FD.
Because of lower interest, 28 out of 41 mutual funds stopped investing in FD (0% FD investment).
Only 12 funds still kept some money in FD.
Except 5 funds, most other funds also reduced stock market investment.
Due to lower earnings and market impact, NAV of most funds dropped below the face value of Rs.10.
A falling NAV means the unit price investors hold has reduced in value. This directly affects investor return, even if the fund still earns some money from stocks or bonds.
These changes do not indicate failure. Mutual funds depend on market cycles and react to interest rates and market risk.
SIP vs Lumpsum in Nepal – How Returns Behave
There are two main ways to invest in Nepali mutual funds:
Lumpsum Investment
Money is invested at one time, units are bought at one NAV price.
Higher gain potential if the market rises soon after buying.
Risk is also placed on a single entry price.
SIP (Systematic Investment Plan)
A fixed small amount is invested every month.
Units are purchased at different NAV prices over time.
When NAV is high → fewer units are bought.
When NAV falls → more units are bought.
SIP balances the average buying price and works well for students, salaried earners, and long-term investors in Nepal.
Main Fees That Reduce Returns in Nepal
After earnings, mutual funds remove these common expenses:
Management fee charged by the fund house
Expense ratio (operation and administration cost)
Exit charges (if applicable in some funds)
If fees are high, investor return becomes lower. If fees are lower, more money stays to support unit value and portfolio growth.
Who Can Issue Mutual Funds in Nepal
In Nepal, only approved financial companies can start a mutual fund. They must meet standard legal conditions:
Minimum paid-up capital: Rs.2 billion
At least 5 years running the company
Continuous profit for 3 years
Net worth not below paid-up capital
No fraud or blacklist record for directors or CEO
Once a company qualifies, it can apply for approval through the Nepal regulator.
Mutual Fund Return Types for Investors
In Nepal, mutual funds generally provide two choices for investor benefits:
1. Dividend Option
Profit is given back to investors in cash or bonus units.
Unit price mostly stays stable.
Suitable for investors who want regular income.
2. Growth Option
All earnings are reinvested automatically.
NAV can rise more in the long term.
Ideal for education goals, saving for future, and long-term plans in Nepal.
Pros and Cons: Mutual Funds for Returns in Nepal
Advantages
Investment is managed by professionals
Risk is spread across many areas
No need to watch the market daily
Can start small with SIP
More stable than single-stock investing
Limitations
Returns require patience
NAV depends on market and interest rates
Fees reduce the final return
Investors cannot pick individual stocks
Final Takeaway
Mutual fund earnings and investor returns are connected, but not equal. In 2025, returns were lower mainly because of reduced bank interest and lower portfolio exposure to FD and shares. Investors saw the impact directly through falling NAV.
For new investors in Nepal:
If you want steady monthly saving → SIP is safer and balanced
If you invest for many years → growth option normally helps more
Always check fees, investment mix, and NAV trend before investing
Mutual funds are still a good long-term investment path for Nepali beginners, students, and salary earners. Market ups and downs are part of the journey.
Frequently Asked Questions about Mutual Fund Returns in Nepal
Why did mutual fund NAV fall in Nepal in 2025?
NAV fell in 2025 mainly because banks reduced interest rates and funds cut FD and stock exposure. With lower earnings and weaker market performance, most mutual fund unit values slipped below Rs.10.
Is SIP better than lumpsum investment for Nepali mutual funds?
Yes, SIP is usually better for most Nepali investors because it averages the buying price. During low NAV periods, SIP buys more units, helping long-term returns become more stable and balanced.
Why are investor returns lower than total mutual fund earnings?
Investor returns are lower because management fees and operating costs are deducted first. The remaining amount affects NAV, which determines how much investors actually gain or lose.
How do interest rate changes in Nepal affect mutual fund returns?
Lower interest rates reduce FD income, which lowers overall fund earnings. When banks drop rates, mutual funds earn less from deposits, causing NAV and investor returns to decline.
Which fees reduce mutual fund returns in Nepal?
Returns decrease due to management fees, expense ratios, and exit charges. Higher fees reduce the remaining earnings available to support NAV growth and investor profit.