Mutual Fund regulation in offing

After almost 15 years of securities trading, Nepal will get its first regulation to better manage and regulate Mutual Funds any time soon. Securities Board of Nepal (SEBON) has forwarded draft regulation of Mutual Funds — that is expected to lure small investors to the capital markets — to Nepal Rastra Bank (NRB) and Bankers Association (NBA) and is waiting for their comments.
"We sent the draft to the central bank long ago but they are sitting on it," Dr Chiranjivi Nepal, chairman of the SEBON, the regulatory authority of capital market said, adding that Mutual Fund — with a face value of Rs 10 per unit — is the most suitable investment for a common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.
"Once we get it back, SEBON will approve it and sent it immediately to the Finance Ministry," he added. "After getting the clearance from the ministry, the regulation will come into effect." After the regulation, Mutual Funds are expected to fuel capital market as many commercial banks have shown keen interest in it. "It will create institutional investors also — something that the capital market lacks at present," Nepal added.
In an absence of the regulation also, NIDC Capital Markets Ltd and Citizen Investment Trust (CIT) had issued NCM Mutual Fund and CIT unit trust. But, the first one had a bitter experience in the absence of transparency and regulation.
"The proposed regulation has all the tools that a transparent and professional fund must have," Paristha N Poudyal, director at the Market Regulation Department, SEBON, said, adding that besides the sponsors that issue Mutual Funds, the draft envisions an Assest Management Company (AMC) that will manage the fund, a Trustee that works like a watchdog, a Custodian and a Depository; all of whom has to get separate licence from the SEBON.
"Commercial Banks and financial Institutions can sponsor the Mutual Fund and sponsors will appoint AMC," he added. According to the draft, Mutual Funds can also invest 50 per cent of their funds in foreign country.
A Mutual Fund is a trust that pools the savings of many who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them.
"They can be traded at the Nepal Stock Exchange (Nepse) as well," Poudyal said, adding that these funds are convertible and has liquidity also. Unlike other institutions, it can be stopped or liquidated or transferred to a new scheme, if 75 per cent of the unit-holders complain about mismanagement of the fund or any foul play is suspected," Poudyal said.