Sebon awaits govt nod to Mutual Fund Regulation

The Securities Board of Nepal (Sebon) is waiting for the Finance Ministry's final nod to the Mutual Fund Regulation.
"We have sent the final draft of the regulation to the finance ministry," said Niraj Giri, director at the Securities Board of Nepal, the regulatory authority of the capital market. The ministry has formed a three-man team to finalise the regulation that is expected to lure small investors to the capital market.
Even after more than 16 years of securities trading, Nepal is yet to bring a regulation to better manage and regulate mutual funds.
After getting suggestions from Nepal Rastra Bank (NRB) and Nepal Bankers' Association (NBA), Sebon forwarded the draft regulation for mutual funds to the ministry. "After getting the clearance from the ministry, the regulation will come into effect," Giri added.
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.
After the regulation, Mutual fund is expected to fuel the capital market -- that is at present slowing down -- as many commercial banks have shown keen interest in it. It will also create institutional investors also -- something that the domestic capital market lacks at present.
Despite an absence of the regulation, NIDC Capital Markets Ltd and Citizen Investment Trust (CIT) had issued NCM mutual fund and CIT unit trust. However, NIDC had a bitter experience in the absence of transparency and any regulation.
The regulation is expected to have all the tools that a transparent and professional fund must have. Besides the sponsors that issue Mutual Funds, the draft envisions an Asset Management Company (AMC) that will manage the fund, a trustee that will act as a watchdog, a custodian and a depositor, all of whom will have to get separate licences from Sebon.
Commercial banks and financial institutions can sponsor the mutual fund and sponsors will appoint AMCthe . According to the draft regulation, 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 even be traded in the secondary market as well. Apart from that, these funds are convertible and have liquidity. Unlike other institutions, they can be stopped or liquidated or transferred to a new scheme if 75 per cent of the unit-holders complain of mismanagement of the fund or if any foul play is suspected.