Mutual funds are becoming a more familiar investment option in Nepal, but many investors still find the concept confusing. Among mutual fund types, open-end funds are gaining popularity because they offer flexibility and easier access compared to closed-end funds.
This article explains what open-end mutual funds are, how they operate in Nepal, and how they differ from closed-end funds, with a focus on the country’s legal framework.
What Is a Mutual Fund?
A mutual fund is a pooled investment fund where money from multiple investors is collected and managed by professional fund managers. In Nepal, these funds are also called Samuhaik Lagani Kosh (Collective Investment Schemes).
The fund pools money and invests it in shares, bonds, government securities, fixed deposits, and other financial instruments to generate returns for investors. Fund managers charge a small fee for professional management while aiming to maximize benefits for unit holders.
According to the Securities Act, 2063, a mutual fund is a legal entity where the fund manager manages pooled investments on behalf of participants, providing proportional returns based on the fund’s performance.
Open-End Mutual Fund: Key Features
Open-end mutual funds in Nepal are defined under the Collective Investment Fund Regulations, 2067 and the Collective Investment Fund Directive, 2069.
Key Characteristics
- No fixed maturity: Open-end funds operate continuously, unlike closed-end funds that have a set termination period.
- Continuous buying and selling: Investors can purchase or redeem units directly from the fund manager or designated distributors.
- NAV-based pricing: Units are bought and sold based on the Net Asset Value (NAV), which reflects the fund’s total asset value.
- Price limits: Per regulations, units cannot be sold for less than 90% or more than 110% of NAV.
How to Buy Units
- Investors submit a request through an authorized distributor or fund manager.
- The fund manager confirms allocation within 7 days.
- A certificate of unit ownership is issued within 15 days.
- If the request is rejected, the invested amount is returned within 3 days.
Open-end funds provide liquidity and flexibility, making them suitable for investors who want access to their investment anytime, unlike closed-end funds with fixed durations.
Open Ended Muual Fund in Nepal
| Mutual Fund Name |
| NIBL Sahabhagita Fund |
| NIC Asia Dynamic Debt Fund |
| Siddhartha Systematic Investment Scheme |
| NMB Saral Bachat Fund – E |
| Shubha Laxmi Kosh |
| Nabil Flexi Cap Fund |
| Kumari Sunaulo Lagani Yojana |
| Sanima Flexi Fund |
| Prabhu Systematic Investment Scheme |
| Citizens Sadabahar Yojana |
| NI 31 |
| NIC ASIA Equity Linked Investment Scheme |
Closed-End vs Open-End Funds
| Feature | Closed-End Fund | Open-End Fund |
|---|---|---|
| Listing | Listed on NEPSE | Not listed on NEPSE |
| Maturity | Fixed (e.g., 5–15 years) | No fixed maturity, continuous operation |
| Unit Trading | Traded on NEPSE secondary market | Purchased/redeemed via fund manager/distributors |
| Pricing | Premium/discount to NAV possible | NAV-based, daily updated |
| Flexibility | Limited, fixed term | High, units can be bought or sold anytime |
| Dividend & Management | Operates like shares with defined distribution | Managed continuously by fund manager, proportionate returns |
Legal Framework for Open-End Funds in Nepal
The Collective Investment Fund Regulations define open-end funds as schemes without a fixed duration. These regulations cover:
- Unit purchase and redemption rules
- NAV calculation and publication
- Distributor appointment
- Maximum and minimum pricing relative to NAV
These rules ensure transparency, protect investor interests, and maintain market discipline for open-end funds.
Why Investors Choose Open-End Funds in Nepal
- Flexibility: Buy and sell units at any time.
- Professional management: Fund managers handle investments efficiently.
- Diversification: Investments spread across multiple instruments and sectors.
- Safety: Less risk compared to direct stock investment, especially for beginners.
Open-end funds are an important tool for Nepali investors looking to enter the capital market safely while benefiting from professional management.
Frequently Asked Questions about Open-End Mutual Funds in Nepal
How do open-end mutual funds work in Nepal?
Open-end mutual funds work by continuously issuing and redeeming units at NAV. Investors buy or sell directly through the fund manager, making entry and exit flexible at any time.
How are open-end mutual fund prices determined in Nepal?
Prices are determined strictly by the fund’s daily NAV. Regulations require buying prices to stay within 110% of NAV and selling prices not below 90% of NAV.
How can investors buy units of open-end mutual funds in Nepal?
Investors can buy units by submitting a purchase request to the fund manager or authorized distributor. Units must be allocated within 15 days, and rejected requests must be refunded within 3 days.
What is the main difference between open-end and closed-end funds?
The main difference is that open-end funds allow buying and selling anytime, while closed-end funds trade on NEPSE. Closed-end units may trade at premium or discount, unlike NAV-based open-end units.
Why do Nepali investors prefer open-end mutual funds?
Investors prefer open-end funds because they offer flexibility and easy liquidity. Units can be redeemed anytime, making them suitable for beginners and SIP-based investing.