A mutual fund, also called a collective investment scheme, is a way for multiple investors to pool their money together. The collected money is professionally managed by experts to invest in different financial instruments. In Nepal, mutual funds are managed by a team that usually includes fund promoters, supervisors, fund managers, and depositories. Profits earned from these investments are distributed proportionally to all investors.
How Mutual Funds Work in Nepal
When you invest in a mutual fund in Nepal, you buy units of the fund. Each unit represents your share in the fund’s total portfolio. The fund manager decides where to invest the money to maximize returns while reducing risk. This professional management makes mutual funds convenient, especially for investors who are new to the stock market or do not have time to manage investments themselves.
Types of Mutual Funds in Nepal
Open-End Funds
These funds do not have a fixed investment amount or period.
Investors can buy or sell units at any time.
Fund managers can issue new units whenever needed, giving high liquidity.
Open-end funds are not listed on the Nepal Stock Exchange (NEPSE), so they cannot be traded on the secondary market.
They are ideal for Systematic Investment Plans (SIPs), where investors invest a fixed amount regularly over time.
Closed-End Funds
These funds issue a fixed number of units for a specified period.
Once issued, no additional units are created until the fund matures.
Closed-end funds are listed on NEPSE, allowing investors to trade units in the secondary market.
Most mutual funds in Nepal currently operate as closed-end schemes.
Where Mutual Funds Invest in Nepal
Nepalese mutual funds are allowed to invest in multiple instruments to reduce risk and diversify the portfolio:
Securities registered with the Securities Board of Nepal (SEBON)
Publicly issued shares or bonds
Listed securities in the secondary market
Government-issued or government-guaranteed debt instruments, such as treasury bills and central bank instruments
Bank deposits and other money market instruments
Foreign securities (up to 25% of the fund) approved by SEBON
Investment Limits for Safety
Mutual funds in Nepal must follow strict rules to reduce risk:
No more than 10% of a company’s total paid-up capital in one company’s shares
No more than 10% of the fund in a single security issued by a company
No more than the allocated percentage in another mutual fund
Up to 10% in bank deposits or money market instruments
Why Mutual Funds Are Suitable for Nepali Investors
Mutual funds are a good choice for ordinary investors who want to:
Enter the stock market with professional management
Avoid the complexity of direct stock trading
Reduce risk through diversification
Invest with lower capital, even starting with a small amount
The fund manager handles all investment decisions and distributes profits after deducting management fees and expenses. This makes mutual funds convenient, safe, and beginner-friendly investment options in Nepal.
Frequently Asked Questions about Mutual Funds in Nepal
How do mutual funds work in Nepal?
Mutual funds work by pooling investor money and investing it in shares, bonds, and deposits. Fund managers handle all decisions, and investors receive returns based on changes in NAV and distributed profits.
Are mutual funds safe for beginners in Nepal?
Yes, mutual funds are safer for beginners because they offer diversification and professional management. Instead of picking stocks, investors rely on experts who follow SEBON guidelines and risk limits.
What is the main difference between open-end and closed-end mutual funds?
Open-end funds allow buying and selling anytime at NAV, while closed-end funds trade on NEPSE. Open-end funds provide high liquidity, whereas closed-end units fluctuate based on market demand.
Where do mutual funds invest in Nepal?
Mutual funds invest in shares, bonds, treasury bills, deposits, and SEBON-approved securities. They also diversify across multiple sectors to reduce overall investment risk.
What investment limits do mutual funds follow in Nepal?
Funds follow strict limits like investing no more than 10% in a single company. These rules help protect investors by reducing concentration risk and ensuring balanced portfolios.