A mutual fund is an investment vehicle that pools investors’ money and invests on behalf of the investors. It is an instrument that raises money from a group of people and invests their money in stocks, bonds, and other securities. Each investor owns units, which represent a portion of the holdings of the fund. Mutual funds are managed by professional fund managers who create specific portfolios with regards to the investment objectives.
In Nepal, Mutual Funds are governed by:
Mutual funds raise their funds from the general public and institutions. Each mutual fund investor is a “unit holder” of the mutual fund scheme. All unit holders share in the funds’ gains and losses on an equal basis, proportionately to the amount they’ve invested. Investors are entitled to gains and losses realized on the entire portfolio, not to any individual security the fund is invested in.
In Nepal, Mutual Funds are governed by:
The corpus or the fund size differs from scheme to scheme. The corpus is fixed in case of closed-end fund. In the present Nepalese context, fund sizes usually range from around Rs.600 million to Rs. 1 billion.
In the Nepalese context, Mutual Fund Companies will invest in a combination of or in all the following instruments as stipulated by Rule 34 of prevailing Mutual fund Regulation:
A Mutual Fund’s investments are chosen and monitored by a qualified fund manager who buys and sells securities for the most effective growth of the fund. The fund manager works on behalf of the unit holders and works on their interest.
The Net Asset Value (NAV) indicates the underlying value of the mutual fund. The NAV is calculated by the mutual fund company. It shows how much each investor would receive if the mutual fund portfolio was to be liquidated and all liabilities were paid off.
The following formula is used to calculate the NAV:
NAV = (Fund Assets – Fund Liabilities)/Total shares outstanding
In case of open-end mutual funds, shares of the mutual fund are sold and bought at the NAV price.
In case of closed-end mutual funds, shares of the mutual fund may not be sold and bought at the NAV price. As the closed-end fund is traded in a stock exchange (e.g. NEPSE), the traded value of the mutual fund usually differs from the NAV calculated by the mutual fund company. The market price is quoted by NEPSE, while the NAV is quoted by the mutual fund company.
The mutual fund pays out dividends annually. Further, when the mutual fund scheme matures, the assets of the fund are liquidated and the realized profits are distributed among the holders of the mutual fund units.
Yes, NRNs can also invest in mutual funds through portfolio managers.