Mutual funds have become a common investment choice in Nepal, especially for people who want returns without actively managing their own portfolio. However, many new investors still struggle to understand how these funds actually work, what fees apply, and what risks they carry.
This detailed guide explains each part of mutual fund investing in Nepal in clear and simple terms.
1. What a Mutual Fund Really Is
A mutual fund gathers money from many small and large investors and keeps it in a single pool.
This pooled amount is then invested in:
Shares listed on NEPSE
Debentures
Fixed deposits
Other approved financial instruments
Although the fund invests in the share market, investors do not directly own company shares. Instead, they own units of the fund. The value of these units changes daily based on the fund’s investment performance.
2. The Three People Managing Your Money
Each mutual fund in Nepal works under a professional structure. Three key parties are responsible for running the fund:
a) Fund Sponsor
Provides the initial seed capital.
Starts and promotes the mutual fund.
Holds a fixed percentage of units at the beginning.
b) Fund Manager
Makes all the buy/sell decisions.
Decides how much to invest in shares, debentures, or fixed deposits.
Handles daily operations, portfolio balancing, and risk control.
Charges an annual fee (up to 1.5% of NAV).
c) Fund Supervisor
Observes and monitors whether the fund manager is working responsibly.
Ensures investment rules, risk limits, and strategies are followed.
Charges up to 0.2% annually.
These roles ensure that your money is professionally handled and regularly checked.
3. Types of Mutual Funds You Can Buy in Nepal
Nepal offers two main kinds of mutual funds. They behave differently and are suitable for different types of investors.
A) Closed-End Mutual Funds
Have a fixed lifespan, usually 7 to 10 years.
After IPO, units are listed on NEPSE.
You can buy or sell these units like shares through brokers or TMS.
Units often trade at a discount or premium compared to NAV.
Investors get cash dividends based on the fund’s earnings.
When the fund expires, all assets are sold, and money is returned to unit holders.
B) Open-End Mutual Funds
No expiry date.
Units are not traded on NEPSE.
Investors buy and sell directly from the fund manager.
Price is always based on NAV.
Offers flexible options like:
Dividend reinvestment
Systematic Investment Plan (SIP)
Systematic Withdrawal Plan (SWP)
Open-end funds are suitable for long-term and regular investors who want flexibility.
4. How Units Are Priced and How to Buy Them
a) IPO Pricing
When a mutual fund is first launched, units are offered at Rs. 10 per unit. Investors must apply for at least 100 units (Rs. 1,000).
b) Buying Closed-End Units
Must open a broker account or use TMS.
Search under the symbol “MF”.
Buy/sell at market price, which depends on supply and demand.
Brokerage commission, SEBON fee, DP fee, and 5% capital gains tax apply.
c) Buying Open-End Units
Units bought directly from the fund manager.
Price strictly follows NAV of the day.
Only DP fee applies when buying.
Exit fee applies when selling, depending on the holding period.
5. How Investors Earn From Mutual Funds
Mutual funds provide returns in three main ways:
1. Cash Dividend
Closed-end funds distribute earnings as cash dividends annually.
2. Dividend Reinvestment
Open-end funds allow investors to reinvest dividends to buy more units at face value.
3. Capital Gains
Investors can profit if the buying price and selling price differ.
This applies to both closed-end and open-end funds, depending on NAV movement and market conditions.
Your total return depends on investment performance, fund manager decisions, and market behavior.
6. How and When You Get Your Money Back
Closed-End Funds:
Investors can exit anytime by selling units on NEPSE.
At maturity, the fund is liquidated and distributed proportionally to all investors.
Open-End Funds:
Investors can redeem units directly from the fund manager at current NAV.
SWP allows investors to withdraw a fixed amount regularly.
SIP allows investing regularly (monthly/quarterly).
Both types are flexible, but open-end funds offer smoother entry and exit.
7. What to Check Before Investing
To make a smart decision, examine the following points:
NAV Trend: Check how the fund’s NAV has moved in past months or years.
Fund Manager’s Track Record: Strong performance history is important.
Dividend History: Shows how consistently the fund has been generating surplus.
Remaining Tenure (for closed-end funds): Shorter periods may offer lower growth.
Investment Portfolio: Check where the fund is investing—equity, debentures, deposits, etc.
Fee and Charge Structure: Exit fees, service fees, and taxes affect final returns.
Fund Strategy: Know whether the fund focuses on growth, income, or balanced allocation.
Making an informed decision helps avoid disappointment.
8. Why Mutual Funds Are Useful for Nepali Investors
Suitable for people who lack market knowledge.
Helpful for investors who have limited time to manage their own portfolio.
Provide tax advantages because mutual funds receive certain exemptions.
Offer access to IPO reservations (5% quota).
Managed by professionals with better market reach and research tools.
Helpful for long-term wealth creation with comparatively lower risk.
Frequently Asked Questions about Mutual Funds in Nepal
How can beginners buy mutual fund units in Nepal?
Beginners can buy mutual fund units by applying for IPO units or purchasing through brokers or fund managers. Closed-end funds require a broker or TMS account, while open-end funds are bought directly at NAV from the fund manager.
Do mutual funds in Nepal charge fees when buying or selling units?
Yes, mutual funds apply several fees depending on the fund type. Closed-end funds include brokerage fees and capital gains tax, while open-end funds may charge exit fees and DP fees during redemption.
Is investing in mutual funds in Nepal risky?
Yes, mutual funds carry market risk because their NAV changes with stock and bond performance. Although managed professionally, returns are not guaranteed, and unit prices can fluctuate based on market movements.
How do investors earn returns from mutual funds in Nepal?
Investors earn through dividends, reinvested bonuses, and capital gains. Closed-end funds usually pay cash dividends, while open-end funds can reinvest dividends for more units and provide returns as NAV increases.
What should investors check before buying a mutual fund in Nepal?
Investors should check NAV trends, fund manager history, dividend records, fees, and portfolio allocation. Reviewing these factors helps match the fund with your risk level and long-term goals.