Urge to provide Tax benefits for Mutual Fund

Stakeholders suggested to provide tax benefits to attract investors to the Mutual Fund that is in the offing.

"Without tax benefits, it would not attract investors," they suggested, recommending some changes like capital structures, clarification in its legality and widening its area of investment in the draft Mutual Fund Regulation during an interaction on Mutual Fund regulation (draft) organised by Securities Board of Nepal (Sebon) here today.

"Their area of investment should be widened," suggested president of Nepal Investors Forum Sunanda Bahadur Shrestha. "They should also be opened for the consortium financing," he said, adding that the concentration of present secondary market on financial institutions could pose a risk.

"The suggestions will be incorporated in the draft," said Securities Board of Nepal (Sebon) chairman Dr Soorbir Poudel.

"There is no doubt that the Mutual Fund will help develop and expand the capital market," he said, adding that the entry of institutional investor in the form of Mutual Fund could give a new lease of life to the present ailing secondary market.

"The Sebon is waiting for the Finance Ministry's final nod to the Mutual Fund Regulation," Poudel added.

Even after more than one-decade-and-a-half years of securities trading in Nepal, the country is yet to bring a regulation to better manage and regulate mutual funds, though there are two -- NCM Mutual Fund and Citizen Inversntment Unit -- are in the market.

"Mutual fund is the most suitable investment option for a common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost," said Sebon director Paristha Nath Poudel.

After the regulation, Mutual fund is expected to fuel the capital market -- that is at present slowing down -- as many financial institutions have shown keen interest in it. "It will also create institutional investors also -- something that the domestic capital market lacks at present," he added.

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," Shrestha said.

The regulation -- expected to have all the tools that a transparent and professional fund must have -- lacks some clarifications, said the investors and representatives from financial institutions.

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. "However, in absence of Act, supervisors are created in the regulation until the Act comes into effect," according to the draft regulation.

Commercial banks and financial institutions can sponsor the mutual fund and sponsors will appoint AMC. According to the draft regulation, mutual funds can also invest 50 per cent of their funds in foreign country. "While investing outside the country, the regulation should make it clear taht the investment be made in rated companies stocks only," suggested Dr Ramesh Bhandari from Growmore Merchant Banker Ltd.

Similarly, Prabin Raman Parajuli from Nabil Bank suggested the board to attract real sector in the capital market. "Why should investors invest in Mutual Fund instead of direct investment in the Financial Institutions that is a common practice at present," he asked.

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.