Mutual Fund | Everything Nepalese Investors need to know

Definition: Mutual Fund is a professionally managed investment vehicle that collects money from large number of investors to invest in multiple diversified fields like stock market, bonds and other securities. Their primary goal is to generate profit by diversifying investment in just the right number of companies to make sure that the fund’s return always beats the markets return.

They give small or individual investors an access to invest small or large amount of money in professionally managed investment strategy for generating profits. Popularity of mutual fund schemes have gradually increased in Nepal among Nepalese Investors. People are investing in such schemes more than ever before.

Types of Mutual Fund

1). Stock Fund –

These type of funds invest mostly in stock or equity of companies listed in stock exchange. So these are highly popular mutual fund schemes with high risk and high earning potential.

2). Bond Fund –

As in the name, these type of funds invest in bonds, debenture and government securities. They earn return mostly in the form of interest which is shared with investors. They are low risk and so they relatively offer lower returns.

3). Money Market Fund –

These type of funds invest mostly in short term debt instruments and gives reasonable return to investors. It is a low risk investment schemes so it offers average returns which is neither high nor low. Such type of funds is suitable for investors who wants to take low risk and wants return somehow higher than that offered in savings account.

4). Balanced Fund –

These type of funds invest in stock or equity of companies and debentures or bonds in a balanced manner. Allocation is made by professionals in such a way that it offers moderate risk to investors with moderate returns.

How Mutual Fund Works ?

Mutual Fund operates by pooling money from many different small or large investors. The amount of money thus collected is invested in stock market, bonds, assets, fixed deposits and other securities. Because mutual funds is managed by professionals and investment is made in diversified fields, the risk involved is reduced. Those who have invested in mutual fund schemes shares both profit and loss.

Mutual Fund are the best investment option for those who want to invest in less risky, more diversified, lower cost, safe and professionally managed portfolios. You receive gains from mutual funds in the form of capital gain or dividends. Another way of gaining from mutual fund schemes is through the power of compounding if you reinvest your dividends.

Mutual Funds can be open ended or close ended. An open ended schemes issue unlimited number of shares whereas close ended schemes issue fixed number of shares to investors. Both types of fund are available in Nepal and are listed in the table below.

Open Ended

The table below presents the currently active open ended mutual fund in Nepal. They cannot be traded via TMS or NEPSE, instead their transaction happens directly via the fund manager or from their website.

These are also the only mutual funds offering systematic investment plan (SIP) in Nepal. Meaning Nepalese Investors can participate to invest small fixed amount at regular intervals in these funds.

Close Ended Mutual Fund Listed in NEPSE

The table below presents the currently active close ended mutual fund listed in NEPSE. So these schemes are managed by different commercial banks or their subsidiary companies. Their transaction can be made through TMS ( Trade Management System ) of NEPSE.

Benefits of Investing in Mutual Fund

Investing in mutual funds have several benefits for investors which we have listed below.

Professionally Managed –

These schemes are professionally managed, so they possess the capacity of providing you the best returns. So you invest the money and the investment strategy is built and managed by professionals.

Power of Compounding –

Your money grows exponentially by the power of compounding when you invest in mutual funds and have chosen dividend re-investment plan. Compounding means you earn interest on your interest. In this way your money keeps growing.

Low Risk –

As your investment is managed by professionals in diverse fields and your money grows by the power of compounding, Risk involved is reduced and it becomes safer when compared to direct investment in stocks.

Conclusion:

Mutual Funds are subject to market risk, so you should read all schemes related data carefully before investing in them. With proper research and investment in best schemes you can make profits and grow your money.

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