Mutual funds in Nepal: over the years

Mutual funds in Nepal

Until now, there are three mutual funds in Nepal. But the NCM First Mutual fund, 2050 has already been terminated. The NCM Mutual fund, 2059 and the Citizen Unit Scheme are the currently prevailing mutual funds in Nepal. Brief introductions of these schemes are given below:

1. NCM First Mutual Fund, 2050
With the objective of providing expert investment services, NCM First Mutual Fund, 2050 an open-end fund with a par value of Rs.10 per unit was issued in multiple of 100 units by NIDC Capital Markets in the year 1993. Its main features were (Hada, Rabin, 2004):
· The sale of this scheme was made in 17th Ashad 2050 to 11th Bhadra 2050.
· The allotment of this scheme was made in 11th Ashwin 2050.
· After the distribution of Unit Certificate, the buy and sales were made on the NAV of the First Mutual Fund.
· This scheme was listed according to Security Exchange Act 2040.
· The target was collection of capital will be 100 millions.
· This fund was just an investors’ saving scheme. The investors were the shareholders of the funds’ assets on the basis of the units the hold.
· The unit price of this fund was Rs.10 and the investors were required to hold a minimum of 100 units. Investors for wishing to subscribe in addition to above can hold any without limit.
· The custodian and the banker of the scheme was Nepal Arab Bank Ltd.
· The management company of the scheme was NIDC Capital Market Ltd.
· The expected return of the scheme was 19% annually.

After two years of the introduction, its buying and selling was stopped due to excessive selling pressure. In order to revive the fund and provide liquidity, by means of repurchase, Nepal Rastra Bank and Nepal Industrial Development Corporation injected an amount of Rs.45 million and Rs.15 million respectively in the 1995. The custodian and the trustee of the scheme was NCML. The fund manager of the scheme was NIDC Capital Market Ltd. Thereafter, the fund was converted to close-end fund and listed in the NEPSE. By the end of FY 1999/2000, the fund was in operation in the market with per unit NAV of Rs.22.15. The scheme was terminated by the end of fiscal year 2000/2001.

2. NCM mutual fund, 2059
During the termination of NCM First Mutual Fund, 2050, the fund holders were given option to refund or to participate in another new scheme called “NCM Mutual Fund, 2059”. All the assets and liabilities of NCM First Mutual Fund, 2050 was valued on 2058/06/29 and was transferred to NCM First Mutual Fund, 2059. SEBO approved this new mutual fund on August 9, 2002. Its basic features are as follows (Prospectus of NCM Mutual Fund, 2059):
· The scheme is limited to 1 crore units and shall be managed as close-end fund.
· The pare value of each unit shall be of Rs.10.
· The units issued under this scheme are listed in NEPSE in accordance to Securities Exchange Act, 2040.
· The scheme is managed by NCML and the trustee is NIDC.
· The management company and the trustee has bought 7.5% each, collectively 15% of the total issued units and has invested as seed capital in the fund.
· In order to revive the fund and provide liquidity NRB and NIDC injected an amount of Rs.45 million respectively in the 1995. After valuation of assets of NCM First Mutual Fund, 2050, NCML has returned the fund of NRB. While the funds provided by NIDC as kitty fund has been transferred to NCM Mutual Fund, 2059 and new units has been issued.

Out of the total units, it distributed 1.5 million units to its management and trustee, 1.33 million to the unit holders of previous mutual fund scheme and the remaining 7.17 million units issued to the public. As published in the annual report 2061/2062 of SEBO, total investment of the fund reached to 156.49 million. The latest NAV as published by the fund is Rs. ……….( Kantipur, .....2063, p. ).


3. Citizen Unit Scheme, 2052
Citizen Unit Scheme, 2052 with a par value of Rs.100 came into operation in the year 1995. CIT has been managing this scheme. The scheme is in operation on income cum growth concept. It is an open-end scheme and provides regular income in the form of dividend to the unit holders. Its essential features are: (Prospectus of Citizen Unit Scheme, 2052):
· In order to sustain and increase the confidence of investors and to simplify the operation of the scheme, until and unless the fund of the scheme does not reach to a self sustained position, only a minimum amount of dividend shall be distributed.
· In order to maintain liquidity, the scheme itself has been maintaining the provision of repurchase. The repurchase price is based on NAV of the scheme. But until and unless the fund of the scheme does not reach to a self sustained position, the repurchase price will be equal to par value.
· Since it is a regular income scheme, while investing the funds, proper consideration has been taken regarding value added income and regular income.
· As for then, maximum of 30% of the investment shall be on organized institutions.
· Unless and until there are not sufficient instrument bearing fixed and regular income in the capital market, the funds allocated to invest on such instruments shall be mobilized towards advancing short-term loan. But such investment on advancing short-term loan shall not exceed the funds invested in the government securities.
· Most of the incomes earned from the Citizen Unit Scheme shall be distributed as dividends.
· For the calculation of income, the increase in the value of securities has been converted into income either by handing over or selling it.

As reported in the annual report 2061/2062 of SEBO, by the end of the FY 2061/62, it sold units amounting to Rs. 1215.62 million and repurchased the units amounting to Rs. 702.53 million. The total number of participants of the scheme has reached to 10,813 and it had declared to distribute 7% dividend to its unit holders.