Cost effectiveness: A small investor will find that a mutual fund route is a cost effective method. As per the provision made in the Mutual Fund Regulation, 2067, the total fee a mutual fund can charge including fee for AMC, fund supervisor and the depository is 3 percent and they also save a lot of transaction costs as the fund gets concession from brokerages. Another advantage is that they get the service of a financial professional for a very small fee. If they were to seek a financial advisor's help directly, they may end up paying more. Also, to get the service of investment experts who offer portfolio management, the size of the corpus should be large enough.
Liquidity: Investors can liquidate their investments anytime they want. Most mutual funds dispatch checks for redemption proceeds within a short span of time, in case of open end fund. In case of close end fund, since the units are generally listed on the stock exchange, investors can sell their units there.
Tax exemption: Usually, in most countries, investors do not have to pay any taxes on dividends issued by mutual funds. Also, the schemes are exempted from income tax, which ultimately is a benefit to the unit holders. In case of Nepal, there are initiatives taken by SEBON and MoF for giving tax incentives to the mutual fund schemes in a manner similar to international practices. If this incentive is announced, mutual fund investors also may have taxation advantage.
Transparency: Mutual funds offer daily NAVs of schemes, which help the investor to monitor their investments on a regular basis. They also get periodic information that gives details of the portfolio, performance of schemes against various benchmarks, etc. They are also well regulated and SEBON monitors their actions closely.
4. What is the current situation of mutual funds in Nepal?
After the issuance of Mutual Fund Regulation, 2010 by SEBON, "A” class commercial banks started registering mutual funds. Siddhartha Mutual Fund is the fund registered by Siddhartha Bank Limited (SBL) with SEBON, which is the first mutual fund as per the regulation. For the operation of various schemes under Siddhartha Mutual Fund, SBL has established Siddhartha Capital Limited (SCL) as the fund manager and depository.
5. What is the structure of mutual fund in Nepal?
There may be different organizational structures of Mutual Funds in different jurisdictions. In case of Nepal, Mutual Fund Regulation, 2067 has conceptualized the structure of mutual fund with Sponsor, Fund Supervisor, Fund Manager and Depository. This regulation has also stated the roles of each of these parts of the mutual fund. The following picture can bring clarity about the Mutual Fund structure in Nepal;