Mutual funds have slowly become a familiar term in Nepal’s share market, but many new investors still do not fully understand how they work. While IPOs regularly attract lakhs of applicants, mutual fund units often receive fewer applications. This gap shows that many Nepali investors are still unaware of how mutual funds function and why they are considered safer for beginners.
This explainer breaks down the basics of mutual funds, their types, how they invest, and why they matter in Nepal’s financial market.
What Is a Mutual Fund?
A mutual fund is a pooled investment fund created by an investment company. In Nepali markets, it is also called a Samuhaik Lagani Kosh.
- Investors put their money together.
- The fund manager invests this money in different financial instruments.
- Investors receive units of the fund, similar to shares.
In Nepal, an IPO is issued at Rs. 100 per share, whereas mutual fund units are sold at Rs. 10 per unit during the public offering.
Why Mutual Funds Are Popular Among New Investors
Mutual funds are seen as low-risk, moderate-return investment options. They are suitable for investors who:
- do not have time to study individual stocks,
- want diversified investment,
- prefer a safer option than the secondary market.
The return may not be very high in a short period, but the risk is lower compared to buying individual shares.
Where Do Mutual Funds Invest?
Nepal’s mutual funds operate under the rules of the Securities Board of Nepal (SEBON). They invest in:
- NEPSE-listed shares
- IPO and FPO ordinary shares
- Debentures and preference shares
- Government bonds, treasury bills
- Bank deposits and money market instruments
- Foreign securities (up to 25% as allowed by regulation)
Investment Limits (as per SEBON guidelines)
| Instrument | Maximum Limit |
|---|---|
| One company’s ordinary shares | Up to 10% of the company’s paid-up capital |
| Overall holding in one company | At least 20% of the plan size maintained |
| Preference shares / Debentures | Up to 20% |
| Fixed deposits | Up to 15% of NAV |
| Foreign securities | Up to 25% |
Types of Mutual Funds in Nepal
Mutual funds in Nepal are of two types:
1. Closed-End Mutual Funds
- Listed on NEPSE
- 5 to 15 years maturity period
- Units are traded in the secondary market
- Price can be premium or discount depending on demand
There are 31 closed-end funds currently listed on NEPSE.
2. Open-End Mutual Funds
- Not listed on NEPSE
- Units can be bought or sold directly from the fund manager any day
- NAV (per-unit value) changes daily
- Fund size keeps increasing or decreasing based on investor activity
- No fixed maturity; they operate continuously
Nepal’s first open-end fund is the NIBL Samriddhi Fund under NIBL S Mutual Fund.
There are 6 open-end funds currently operating in Nepal.
Understanding NAV: The Most Important Indicator
NAV means Net Asset Value, which shows the total value of the fund’s assets.
- Total Asset Value ÷ Total Units = NAV per unit
NAV tells investors whether the fund is performing well.
Premium and Discount
- If units trade above NAV → Premium
- If units trade below NAV → Discount
Buying at a discount is often considered safer because you are purchasing below the fund’s actual asset value.
Why Many Nepali Investors Miss Out on Mutual Funds
Despite the growth of NEPSE and over 55 lakh DEMAT accounts, many investors still:
- confuse mutual fund units with IPOs,
- are unaware that mutual fund investing is regulated and lower risk,
- do not follow NAV updates,
- overlook the long-term benefits of diversified investing.
Mutual funds are designed to help new investors enter the market safely while learning about Nepal’s financial system.
Frequently Asked Questions about Mutual Funds in Nepal
How do mutual funds work for new investors in Nepal?
Mutual funds work by pooling investor money and investing it in shares, bonds, and deposits. Fund managers make all buying and selling decisions, making it easier for beginners to invest safely.
Why are mutual funds considered safer than buying individual stocks?
They are safer because mutual funds diversify across many sectors. This spreads risk and reduces the chance of losing money due to one company’s poor performance.
What makes NAV important in Nepal’s mutual fund investment?
NAV is important because it shows the true value of each mutual fund unit. Rising NAV indicates good performance, while falling NAV signals weaker returns.
Why do closed-end mutual funds trade at premium or discount in Nepal?
They trade at premium or discount because market price depends on demand and supply. Prices may move above or below NAV based on investor sentiment, not actual asset value.
Why do many Nepali investors still ignore mutual funds?
Many ignore mutual funds due to low awareness and confusion with IPOs. Lack of understanding about NAV, diversification, and long-term benefits keeps investors from exploring mutual funds.