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How to Buy Mutual Funds in Nepal

Roberto worked as a research analyst for a stock brokerage company and has been writing about the Nepali stock market since 2013.

Nabil Investment Banking manages two mutual funds: Nabil Balanced Fund-1 & Nabil Equity Fund

Nabil Investment Banking manages two mutual funds: Nabil Balanced Fund-1 & Nabil Equity Fund

Interested in Learning About Buying Mutual Funds in Nepal?

You have come to the right place!

Mutual Funds are not a new thing in the context of Nepal. However, since news of the stock market is so centralized, few people have the necessary grasp of the industry.

Mutual Funds provide an excellent, balanced return on your savings that is typically higher than what banks provide. Further, the risk is also greatly minimized—which makes buying mutual funds in Nepal one of the best investment strategies.

What Is a Mutual Fund and How Does It Work?

A mutual fund is basically a "security" -- just like a stock or share of any company. When you buy mutual fund scrips, you are buying "units" of the mutual fund. In the context of Nepal, every mutual fund has a par value (or face value) of Rs 10 per unit. Likewise, every share of a company has a par value of Rs 100 per unit.

A mutual fund is a collection of funds invested by thousands of people. This fund is managed by fund managers. They diversify the funds collected into several investment instruments like share market, fixed deposit accounts, bonds, debentures and others. This way, if one sector is crashing, another balances it, so that maximum return can be obtained with the best possible minimization of risk. Risk Minimization is the fundamental principle of the management of mutual funds.

In the context of Nepal, the fund manager is a subsidiary of a class "A" commercial bank. For example, NMB Capital (a subsidiary of NMB Bank), NIBL Capital Markets (a subsidiary of Nepal Investment Bank), and Siddhartha Capital (a subsidiary of Siddhartha Bank) are some fund managers that manage a handful of mutual funds.

RELATED: If you had invested Rs 1 lakh in the Nepal stock market five years ago, this is how much you would have made.

How Does a Mutual Fund Earn Profit?

Mutual funds invest the money in several instruments: equities (stock market), bonds/debentures, and fixed-income instruments (fixed-deposit accounts). The returns received from them are distributed to each of the units. The value of one unit of the mutual fund is then calculated by subtracting its liabilities (like expenses) from its assets (like bank balance and profit from investments) and dividing the result by the total number of units of the mutual fund issued.

If the current Net Asset Value (NAV) of a mutual fund is greater than the par value, it is said that the mutual fund is in profit. For example, on April 13, 2017, the NAV of the mutual fund Nabil Balanced Fund-1 (NEPSE symbol: NBF1) was Rs 24.87 per unit. This means that those who have 1 unit of NBF1 have made a profit of Rs 14.87 per unit. If the mutual fund was to mature on that date, the holder of 1 unit of NBF1 would have earned Rs 14.87 per unit profit. If the person has 1000 units, he made Rs 14,870 as total profit for a principal of Rs 10,000.

On the other hand, mutual fund scrips in Nepal are liquid and can be freely bought and sold on Nepal Stock Exchange (NEPSE). The process of booking profit through trading in NEPSE is also the most basic one—if you sell for a higher price than what you paid, you made a profit. Mutual fund scrips generally trade for lower values in NEPSE than their respective NAVs. On April 13, 2017, NBF1 was trading for Rs 21.89 per unit in NEPSE.

There are currently 19 mutual funds in Nepal that can be bought and sold in NEPSE.

Two Ways To Buy Mutual Funds in Nepal

1. Initial Public Offering

Initial Public Offering (or Initial Public Issue) is the very first method of raising money for stock from the general public. In Nepal, announcements of IPOs are made public through a national daily newspaper. The IPO runs for four business days, and one can apply to any initial issue of a mutual fund through the normal process of applying IPO in Nepal. If the mutual fund scrips are bought during their IPOs, they can be bought for exactly Rs 10 per unit only.

Normally, one will have to apply for a minimum of 100 units, i.e., Rs 1,000 minimum.

2. Secondary Market (Buying From NEPSE)

When the mutual funds raise money from IPO, those scrips are listed on Nepal Stock Exchange, where they can be freely bought and sold. To buy mutual funds from the secondary market, one will have to visit any one of the licensed NEPSE brokers and create a broker account. There are currently 50 brokerage companies in Nepal with branches outside a few cities like Pokhara, Chitwan, Birgunj, Bhairahawa, Banepa, Biratnagar, Itahari and Nepalgunj.

The buyer should also have a beneficial owner account (also known as Demat accounts). Once the mutual fund scrips are bought, those scrips are then deposited into the buyer's Demat account. This way, mutual funds can be bought in the secondary market.

The returns received from them are distributed to each of the units.

The returns received from them are distributed to each of the units.

3. Directly From the Mutual Fund Manager

A few open-end mutual fund schemes in Nepal cannot be bought in the secondary market. Open-end schemes are those that don't have a set maturity date. They can be bought and sold directly from the fund managers.

One such mutual fund is NIBL Sahabhagita Fund, managed by NIBL Ace Capital. Its Net Asset Value (NAV) as of November 26, 2020, remains at Rs 12.40 (which is Rs 2.40 or 24% more) than its IPO value of Rs 10. So, if investors bought it during its IPO 2 years back, they have made a 24% return so far. They can visit NIBL Ace Capital to sell their mutual fund scrips and get the money. Conversely, they can also visit there to buy more of the fund (but the purchase price will be Rs 12.40).

NIC Asia Capital is also coming up with its NIC Asia Dynamic Debt Fund, another open-end mutual fund scheme.

You Bought a Mutual Fund Scrip, Now What?

Now that you have bought into a mutual fund in Nepal, what you do with it depends on your investment plan and portfolio. The mutual fund can be held until its maturity date or can be sold at NEPSE for a profit. Typically, holding it until maturity will provide higher returns (at the cost of a longer time period) than selling it in the secondary market.

Good luck!

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2017 Roberto Eldrum


manish kumar on July 20, 2020:

how to invest

Ranxita on May 24, 2020:

How to invest ?

Sharmila khanal on February 17, 2020:

M interested but how to invest??

govind Thapa on November 23, 2019:

I would like to learn about mutual fund

Bhuwan pokhrel on October 14, 2019:

How to choose good mutual and deposit money

Akhtar Ali on October 06, 2019:

I want to invest my money in nepali mutual funds how can i?

Radha Ghimire on September 30, 2019:

I want 2 invest in mutual fund so how 2 invest more details

ajaybohora on September 24, 2019:

I am also interested about it. Please send details about it.

Pooja gupta on August 31, 2019:

I wann to invest in mutual I contact with banks to invest

Barsha Basnet on August 08, 2019:

is it like or similar to fixed deposit?

Milan bk on December 06, 2018:

I want to invest.but now I live in Portugal how can I please t

Narayan sapkota chitawan nepal/ on September 18, 2018:

which bank and whom i have to contact? i want to know all the details about the mutual fund. i am from chitawan so any person /bank in chitawan. plz

Najir rain on July 10, 2018:

i want to invest in mutual fund so please write more deatil information for beginner investor in nepali font

Milan limbu on January 12, 2018:

it is helpful.

anjali on October 15, 2017:

please write more articles.they tends to be extremely helpful for beginner investor like me :)

tashi on August 23, 2017:

But I already bought NEF (Nabil Equity Fund) , & some other as well in IPO , So How do i know if company is doing well apart from just looking at NAV, Looking at financial highlight of NEF, what do i look for, how do i know whether the mutual fund is going give us dividend in years to come & and not just wasting our money?? what and where to look for??

tanvi on July 25, 2017:

easy and detailed information ,thank you