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Mutual Funds. Mutual Fund. – Financial intermediaries :collects fund from individual investors and invest those funds in different areas. – Investors subscribe to units/shares of Mutual fund just as shareholders subscribe to shares of a company. Known as unit holder.
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Mutual Fund • – Financial intermediaries :collects fund from individual • investors and invest those funds in different areas. • – Investors subscribe to units/shares of Mutual fund just • as shareholders subscribe to shares of a company. • Known as unit holder. • – Does not guarantee any dividend. • – Dividend can be paid only from the revenue income and • realized capital gains of the underlying portfolio and NOT • from previous profits as in the case of shares
Benefits • • Expert on your side: When you invest in a mutual fund, you buy into the experience and skills of a fund manager and an army of professional analysts • Limited risk: Mutual funds are diversification in action and hence do not rely on the performance of a single entity. • More for less: For the price of one blue chip stock for instance, you could get yourself a number of units across a number of companies and industries when you invest in a fund!
Benefits • • Quick access to your money: It's good to know that should you need your money at short notice, you can usually get it in four working days. • Transparency: As an investor, you get updates on the value of your units, information on specific investments made by the mutual fund and the fund • manager's strategy and outlook. • • Low transaction costs: A mutual fund, by sheer scale of its investments is able to carry out cost -effective brokerage transactions. • • Tax benefits: Over the years, tax policies on mutual funds have been favourable to investors and continue to be so
Open Vs Close • Open End Fund A MF that does not have restrictions on the quantity of units the fund will offer. If the demand is high, the fund will continue to offer units to the investors and to provide liquidity on investments, the fund will also repurchase the units from the investors when they intend to sell. • Close End Fund A close end fund raise a fixed amount of capital through a New Fund Offering (NFO) of units. The fund is then allotted, structured, listed and traded like stock on a recognized stock exchange as disclosed in the Offer Document
Growth Scheme • A diversified portfolio of equities which has capital appreciation as its primary objective with little or no dividend payouts. • Portfolio would mainly consist of equities of companies with above-average growth in earnings and that plough back their earnings into expansion, acquisition, and/or research and development. • Growth funds are riskier than Income funds or Balance funds due to its volatility. Can be categorized into maximum growth. Capital appreciation is the GOAL
Income Scheme • Income Scheme • • A fund that emphasizes more on regular income than capital appreciation. • Such funds hold a variety of government, municipal and corporate debt securities, preferred stock, money market instruments and dividend-paying stocks
Balance Scheme • A fund that combines equities, bonds, debentures and money market instruments in a single portfolio. • Generally, these funds consist of a relatively fixed mix of stocks and bonds that reflects either a moderate (higher equity component) or conservative (higher fixed-income component) risk. • Objective is to earn both capital gains and current income a. High-grade common stocks (60 - 75%) b. Fixed income securities (25 - 40%) c. Hybrid Fund: Mix of Equity and Bo
Money Market Scheme • Money Market Scheme • A fund targeted towards investors with low risk appetite, the portfolio consists of only money market instruments providing • fixed rate of returns over a fixed maturity date.
Special Scheme • Index Scheme • • A fund with a portfolio constructed to match or track the components of a market index such as the Sensitive Index. • These funds are well diversified, hence less risky. Sector Specific Scheme • A fund that invests solely in securities of companies that operates in a particular sector / industry. • As the asset holdings of this type of fund are in the same industry, there is an inherent risk associated due to lack of portfolio.
Schemes Based on Size • • Large cap funds: Funds that invest in companies whose total market cap is high (i.e. generally top 30% companies) • Mid cap funds: Funds that invest in companies whose market cap is between 69% to 31%) • • Small cap funds: Funds that invest in companies whose market cap is below 30% of total listed companies
Net Asset Value (NAV) • Net Asset Value • Used as a basis for valuation of investment company shares • Selling new shares • Redeeming existing shares • Calculation NAV= (Market Value of Assets – Liabilities)/Shares Outstanding • Value of the portfolio changes. • Investments marked to market daily, so that current value of • investors investment can be ascertained • Pool of investors money is represented as unit capital.
NAV • • Example: NAV of a fund • Total portfolio of mutual fund: Rs. 120 million • liabilities Rs. 5 million. Total number of • shareholders are : 5 million • NAV= 120-5/5 • NAV= Rs. 23 per share
History • first mutual fund was established in Europe around 1774. • NCM Mutual Fund, 1993 It was an open-end fund with a par value of Rs.10 per unit which was issued in multiple of 100 units by NIDC Capital Markets • In the end of fiscal year 1999/2000 the Net Asset Value (NAV) of the scheme was NRs 22.15 and the scheme was terminated in the fiscal year 2000/2001.
Citizen Unit Scheme • In 1995, Citizen Unit Scheme was introduced and it is the only open end mutual fund that is introduced in Nepal. The par value of this scheme is NRs 100 and it provides regular dividend in the form of interest to its unit holders. T • The scheme manager is Citizen Investment Trust (CIT) and the current fund size is NRs. 1.62 billion. The current interest rate that the scheme is providing is 8% and CIT is also providing buyback facilities at its own premises to facilitate for liquidity of the units. • However, this scheme is not tradable in NEPSE but popular among government employees and defensive investor who wants less risk but regular return.
Nepal Rules • Parties involved as per Mutual Fund Regulations Nepal, 2067 (2010 A.D) In Nepal, there are four parties involved as per MF regulation, 2010. • 1. Fund Sponsor: • Fund Sponsor establishes and promotes mutual fund. For example Nabil bank is the fund supervisor of NBF1. The sponsor shall be required to obtain approval from SEBON before appointing the fund supervisor. After getting the approval to start the operation of mutual fund from SEBON, 20 % of the seed money of the scheme is provided by them. • 2. Fund Manager Fund manager is any company or corporate body licensed pursuant who are responsible for registration, operation and supervision of the mutual fund. For example Nabil investment is the fund manager of NBF1.
Nepal Rules • 3. Fund Supervisor • Fund Supervisor means the group of people appointed for supervising the Mutual Fund. Before the operation of any mutual fund, the fund sponsor shall appoint at least five people from different field and having qualification as per the MF regulation 2010 as the fund supervisors, Their main duties and responsibilities is to work for the best interest of the unit holders. • 4. Depository The fund manager with consent of the fund supervisor should appoint the Depository who are licensed by SEBON for performing task of depository of the fund. For example Nabil Investment is also depository of NBF1.
