Interest in Systematic Investment Plans (SIP) has been rising in recent years, especially among people who want to invest but cannot take high risks in the share market. SIPs allow regular investment with small amounts, which has made them popular among new and small investors across the country.
What SIP Means
A SIP is not an investment product on its own. It is simply a method of investing in mutual funds at fixed intervals. The idea is similar to a recurring deposit in banks, where a set amount is invested every month or within another fixed period. Investors can choose intervals like one month, three months, six months, or a year. Many people invest for at least five years, while some keep it running without a fixed end date.
Why SIP Appeals to Small Investors
SIP has become an option for those who want to invest but feel uncertain about the market. Regular, small investments help reduce pressure and allow money to grow over time through compounding. For example, someone investing 10,000 rupees each year and earning a 15 percent return would see the return added to the next year’s investment. This steady compounding helps build capital slowly.
There is no age limit for starting a SIP. Anyone can invest based on their budget and time frame.
How Mutual Funds Fit In
Investing through SIP means investing in mutual funds. These funds are managed by merchant bankers licensed by the Nepal Securities Board. They collect money from many investors and invest it in different financial instruments.
Mutual funds are generally seen as safer compared to directly buying individual shares. They operate under two main categories: open-ended and close-ended schemes.
Open-Ended and Close-Ended Schemes
Open-ended schemes sell units to investors at any time. The fund manager can issue as many units as needed and buy them back when investors want to exit. These schemes are not listed on the stock exchange.
Close-ended schemes sell units only once during a fixed period. After that, no new units are issued until the scheme ends. These units are listed on the Nepal Stock Exchange and can be traded in the secondary market.
SIP is commonly used within open-ended schemes, where investors can add small amounts at regular intervals. Nepal currently has nine open-ended mutual funds in operation, including:
NIBL Sahabhagita Fund – NIMB Ace Capital
NIC Asia Dynamic Debt Fund – NIC Asia Capital
Siddhartha Systematic Investment Scheme – Siddhartha Capital
NMB Saral Bachat Fund E – NMB Capital
Shubha Laxmi Kosh – Laxmi Sunrise Capital
Nabil Flexi Cap Fund – Nabil Investment Banking
Kumari Sunaulo Lagani Yojana – Kumari Capital
Sanima Flexi Fund – Sanima Capital
Prabhu Systematic Investment Scheme – Prabhu Capital
How to Start a SIP
To begin investing, individuals must visit the website of a merchant banker offering SIP services. After registering, they can choose a mutual fund that fits their goals. Investors must select the amount, duration, and interval of investment. A DEMAT and Mero Share account are required.
Bank accounts must be linked during registration. The chosen amount is then deducted automatically based on the selected interval. Most SIP plans allow starting with as little as 1,000 rupees per month.
Things to Consider
SIP returns depend on the market. When markets fall, the value of investments can drop. New investors who are not prepared for market fluctuations may find this difficult. Returns are not guaranteed, and lower market performance may reduce expected gains.
There are also costs such as management fees, entry fees, and exit fees. These charges can reduce total returns, so understanding them is important. Regular investment over several years requires discipline, and missing installments can disrupt long-term plans.
Some investors put all their extra money into SIP and forget to keep an emergency fund. This can cause problems during financial stress. Interest rate changes can also affect returns, especially in debt-oriented funds.
Exiting a SIP
Investors can stop their SIP anytime in open-ended funds. Reasons include emergency expenses, loss of income, unemployment, higher market risk, or completion of financial goals. To cancel, they must contact the fund manager and submit a form, and then ask their bank to stop automatic deductions. There is no cancellation fee.
How Open-Ended Funds Generate Profit
Open-ended mutual funds collect money from many investors and pool it together. Fund managers invest in equities, debt instruments, or mixed assets. Profit comes from capital gains, dividends, interest, and other income. Investors receive dividends, which are added back into their investment. As the fund’s NAV (net asset value) rises, the value of each investor’s units increases. For example, if a NAV rises from 10 to 15, the investment grows by 50 percent.
Frequently Asked Questions about SIP Investment in Nepal
How can I start a SIP investment in Nepal?
You can start a SIP by registering with a licensed merchant banker and selecting an open-ended mutual fund. After choosing the amount and interval, link your bank and complete KYC with a DEMAT and Mero Share account.
Is SIP safe for new investors in Nepal?
Yes, SIP is safer than lump-sum investing because it spreads purchases over time. However, returns depend on market performance, and investors must be ready for temporary losses when NAV drops.
What happens if I miss a SIP installment in Nepal?
Missing an installment does not cancel the SIP automatically. It simply skips one cycle, but frequent misses can disrupt long-term growth and compounding benefits.
Are there fees that reduce SIP returns in Nepal?
Yes, SIP returns decrease due to management fees, entry/exit fees, and administrative charges. These costs vary by fund and directly affect overall long-term performance.
How can I stop or exit a SIP in Nepal?
You can exit a SIP anytime by submitting a cancellation form to the fund manager. After that, request your bank to stop automatic deductions. Open-ended funds charge no cancellation fees.