Mutual funds have quietly become one of the most active institutional players in Nepal’s stock market. While a part of their money sits in fixed deposits and bonds, most of it is deployed in shares of listed companies. And because these funds rely on research teams and technical analysis, many retail investors use their investment patterns as a guide.
How mutual funds invest
Fund managers collect money from unit holders and invest across different assets. By regulation, they can put only a small portion in fixed deposits. The majority goes into the secondary market.
On average, close to three-fourths of mutual fund assets are invested in shares. A small share goes into deposits, while the remaining cash is kept ready for daily trading opportunities.
Managers say their primary goal is simple:
pick companies that can generate stable long-term returns, while keeping enough cash to trade when the market moves.
Where the money is going
Based on recent monthly disclosures, commercial banks remain the top destination for mutual fund investments. Other major sectors include hydropower, life insurance, non-life insurance, development banks and microfinance.
The approach is strategic. Funds usually hold strong companies for the long term, but actively trade stocks that show technical upside for short-term gains.
How Funds Invest
Mutual funds invest in a mix of instruments to balance risk and return:
Stocks: Majority of the fund’s money is invested in listed companies. As of the past data, over 70% of mutual fund investments are in stocks.
Term Deposits & Cash: Around 10-20% is in fixed-term deposits, and 10-20% is held in cash for liquidity and short-term trading.
Sectors: The largest investments are in commercial banks, followed by hydropower , life insurance, non-life insurance , development banks , microfinance, and manufacturing/processing.
Diversification: Mutual funds also invest in bonds, treasury bills, and other money market instruments. Some funds can invest up to 25% in foreign securities approved by the Securities Board of Nepal.
How Fund Managers Choose Stocks
Mutual fund managers follow a systematic approach:
Research Teams: Technical and fundamental analysis is done to identify profitable companies.
Portfolio Strategy: Managers aim for a mix of long-term growth stocks and short-term trading opportunities.
Profit Booking: Stocks are sold when their prices reach target levels to book profits.
Transparency: Monthly reports are published showing holdings and changes, which investors can use to inform their own strategies.
Why retail investors follow them
Many individual investors struggle with company analysis. For them, the holdings of mutual funds work as a reference point. Every month, funds publish details of which companies they bought more of and which they reduced.
Investors often use this data to build their own strategies, especially when:
• a stock held by multiple funds becomes cheaper
• funds increase their position in a sector
• average buying price of the fund is known and the market is trading below it
For informed investors, this becomes a useful indicator—though not a guaranteed formula.
But there’s a catch
Following mutual funds blindly can also be risky.
Funds often sell when prices rise to hit their profit target. Retail investors, however, tend to buy at the top because they only see the latest holdings.
Some panic-sell during corrections without understanding whether the market is in a bearish trend or just experiencing a short pullback.
Fund managers also use tactics like stop-loss and averaging. Retail investors who cannot follow these strategies may face losses even while copying the fund moves.
Trends in Nepal’s mutual fund industry
Nepal’s mutual fund industry is still small compared to global markets, but it is growing steadily.
Updated figures (2025):
Closed-end mutual funds: 40 listed on the secondary market
Open-end mutual funds: 9 currently operating
Open-end schemes are bought and sold through banks and financial institutions at NAV
Closed-end schemes trade on the stock exchange at market prices, often below their NAV
The largest mutual fund in operation remains NIBL Samriddhi/Participation Fund (4 billion authorized size).
Many closed-end funds trade below their face value of Rs. 10, making secondary market purchases more attractive than primary issues in many cases.
Why it matters for everyday investors
Studying mutual fund portfolios can help investors understand:
• which sectors funds find promising
• whether institutions are accumulating or exiting a company
• market sentiment based on fund-level buying and selling
• opportunities where stocks fall below a fund’s average cost
For those who cannot perform technical or fundamental analysis, tracking mutual fund behavior becomes a practical strategy—but only when combined with personal research, risk management, and timing.
Frequently Asked Questions about Mutual Fund Investments in Nepal
How do mutual funds invest in Nepal’s stock market?
Mutual funds invest in Nepal’s stock market by allocating most of their assets to listed shares. They typically place over 70% in equities, while the rest goes to deposits, cash, and bonds. Fund managers adjust holdings monthly based on research, technical trends, and market conditions.
Is it safe to follow mutual fund portfolio moves as a retail investor?
No, blindly following mutual fund moves is not safe. Funds use stop-loss, profit booking, and averaging strategies that retail investors may not replicate. Their buying and selling often happen before disclosures, so relying only on holdings can lead to losses.
How can investors use monthly mutual fund disclosures in Nepal?
Investors can use monthly disclosures by tracking which sectors or stocks funds are accumulating. Comparing market prices with a fund’s average buying cost helps identify opportunities, but investors should still apply their own analysis and risk management.
How do mutual fund managers choose stocks in Nepal?
Fund managers choose stocks in Nepal using both technical and fundamental research. They blend long-term holdings with short-term trades, aiming for stable returns while booking profits when targets are reached. Monthly reports reveal these strategic adjustments.
Should investors buy closed-end mutual funds trading below NAV?
Yes, buying closed-end mutual funds below NAV can be attractive. When prices drop below NAV, investors get exposure to the portfolio at a discount. Still, factors like liquidity, remaining maturity, and market sentiment must be evaluated.