Mutual Funds and Collective Investment Schemes

Nepali mutual funds raise more money than Nepali IPOs. In FY 2081/82 (2024/25) ten schemes took in about NPR 15.88 billion, against NPR 3.93 billion across all fifteen public and further public offerings. That inversion is the first thing to understand about the sector. For a domestic saver, the fund is the primary route into the equity market, and the IPO is the exception.

Sponsor, manager and supervisor

Chapter 6 of the Securities Act 2063 (2007) provides for collective investment schemes, and the Mutual Fund Regulation 2067 builds the structure. It uses three distinct roles.

The fund sponsor promotes the scheme and puts up seed money. Eligibility is restricted to institutions conducting financial transactions under law, insurance companies, and non-banking financial institutions established under special legislation. A sponsor must show five or more years of operation with consecutive profits, net worth not below paid-up capital, a clean credit record, no conviction for fraud or embezzlement, and no regulatory blacklisting.

The fund manager invests the money. The regulation imposes board-level governance. At least one-third of the board must be independent directors, and executive and independent directors must hold a bachelor’s degree in economics, commerce, finance, accounting or management with at least seven years of professional experience in finance or securities, reduced to three years for a qualified chartered accountant.

The fund supervisor has no obvious analogue in some other markets and matters most to a unitholder. Its job is to protect unitholders by overseeing the manager: to check compliance with law and with the scheme agreement, to verify net asset value calculations, to supervise the custody of securities, to monitor performance against the terms on which the scheme was approved, to review complaint handling and to report to SEBON. The supervisor must comprise at least five persons drawn from different sectors, each holding a bachelor’s degree and ten years of experience in economics, commerce, finance or securities, with no criminal record.

Behind those three sits a depository. The Act defines it as a bank or financial institution that contracts with the scheme manager to hold and operate the scheme’s assets, and that agreement must be in place before the scheme operates.

The design intent is legible. The person who chooses the investments does not hold the assets, and a separate body with its own qualification requirements is paid to watch them both.

The sponsor’s seed money

The sponsor must invest at least five percent of the total size of a scheme. For a first scheme that is a flat requirement. For subsequent schemes, the regulation makes the requirement a matter for SEBON to determine in light of how the first scheme performed.

That is a quiet but effective device. A sponsor whose debut fund did badly faces more than reputational damage. It faces a regulator-set capital commitment on its next launch, tying the sponsor’s balance sheet to its record rather than to its marketing.

What a scheme may hold

Concentration limits are expressed against net asset value:

Exposure	Cap
Equity of a single company	10 percent of NAV
Preference shares and debentures	20 percent of NAV
Any single security	10 percent of NAV
Units of other mutual fund schemes	10 percent of NAV
Bank term deposits	15 percent of NAV
Money market instruments	10 percent of NAV
Foreign securities	25 percent of the corpus, emerging markets only

The foreign securities allowance is the one to look at twice. On its face the regulation permits a Nepali scheme to hold up to a quarter of its corpus abroad, in emerging markets. Deploying it, though, requires foreign exchange approval from Nepal Rastra Bank under a capital-account regime that does not generally permit residents to export capital, and we are not aware of it being used at scale. A rule that exists in the securities regulation and is blocked by the exchange control regime is a recurring feature of Nepali finance. It appears again, running in the opposite direction, in Who Can Buy Nepali Securities.

Fee caps

The regulation caps annual charges against NAV, computed and taken quarterly: 1.5 percent for the fund manager, 0.2 percent for the fund supervisor and 0.2 percent for the depository. An open-end scheme may charge an exit load of up to 1.5 percent, and that load stays inside the scheme rather than going to the manager. Each of the manager, supervisor and depository must remit three percent of its quarterly fee to SEBON within thirty days.

A total expense ratio bounded at roughly 1.9 percent of NAV is not cheap by the standards of an index product in a developed market. It sits inside the range one would expect for actively managed equity in a frontier market, and the cap has the useful property of being a hard number rather than a disclosure obligation.

Closed-end schemes and NAV

Most Nepali schemes are closed-end: a fixed corpus raised once, a fixed life, units listed on NEPSE and traded between investors rather than redeemed by the manager. CDSC held units of 69 mutual funds in dematerialised form on 26 August 2026.

Net asset value must be calculated at least weekly for a closed-end scheme and daily for an open-end one, with the open-end scheme’s quarterly fees computed on a daily average.

Weekly NAV publication is the entire investor protection for a closed-end unitholder, because the exchange price of a listed closed-end unit is whatever the order book produces. Nothing in the regulation ties the traded price to NAV, and no mechanism exists to arbitrage a gap. An investor who thinks the units are cheap cannot redeem them at NAV, and one who thinks they are dear cannot create new ones. The unitholder’s return therefore has two components that behave differently: the portfolio’s performance, and the market’s willingness to pay for the wrapper. Only the first is what the fund manager is being paid to deliver.

A closed-end scheme must be delisted from the exchange at least one month before maturity, which turns the last month of the fund’s life into a period with no exit other than waiting for the wind-up.

Winding up

The regulation triggers winding up on expiry of a fixed tenure, on revocation of SEBON’s approval, in extraordinary circumstances, or on a petition by unitholders meeting a threshold expressed both as a proportion of holders and as a proportion of corpus value.

Once wound up, the manager must convert the assets to cash and distribute proportionately within three months, extendable to six. Only actual expenses may be recovered from the assets from that point, and no management fee accrues after the winding-up date.

That last rule is the sharpest unitholder protection in the regulation. It removes the manager’s incentive to run a liquidation slowly.

What a unitholder gets

A Nepali closed-end fund gives a domestic investor diversified access to a market whose free float is about a third of its headline capitalisation, at a capped cost, with weekly NAV disclosure and an independent supervisor. Those are real advantages over direct holding for a saver with a few hundred thousand rupees.

What it does not give is liquidity at NAV, a redemption right, or protection from the discount a fixed-life listed vehicle can trade at. Anyone comparing a scheme’s advertised NAV performance with the return an investor actually earned needs to compare the entry and exit prices on the exchange, not the NAV series.

Sources

1. सामूहिक लगानी कोष नियमावली, २०६७ (Mutual Fund Regulation 2067), fourth amendment consolidation

   Securities Board of Nepal · 2067 (2010/11); amendments recorded 2069.3.1, 2071.12.11, 2076.11.1 and 2077.5.24 · Tier 1 — Primary legal instrument

   Supports: Sponsor eligibility and track record conditions, fund manager governance including the one-third independent director requirement and director experience thresholds, the fund supervisor's duties and composition, the five percent sponsor seed requirement, concentration limits by percentage of net asset value including the 25 percent cap on foreign securities, the fee caps for manager, supervisor and depository, the maximum exit load, NAV calculation frequency for closed-end and open-end schemes, delisting a month before maturity, the winding-up triggers including a unitholder petition threshold, and the three-month distribution period extendable to six.

   Accessed 26 August 2026

2. Securities Act, 2063 (2007) — English text

   Securities Board of Nepal · Authenticated 14 January 2007 · Tier 1 — Primary legal instrument

   Supports: That collective investment schemes are governed by Chapter 6 of the Act, the statutory definition of a depository as a bank or financial institution contracting with the scheme manager to hold scheme assets (section 2(d)), and the requirement for a depository agreement before a scheme is operated (section 73(2)).

   Accessed 26 August 2026

3. वार्षिक प्रतिवेदन आ.व. २०८१/८२ (Annual Report FY 2081/82)

   Securities Board of Nepal · Published 31 December 2025 · Tier 2 — Official publication

   Supports: Ten mutual fund schemes approved in FY 2081/82 raising about NPR 15.88 billion, against 15 IPO and FPO issues raising about NPR 3.93 billion and 17 rights issues raising about NPR 15.41 billion, out of 144 total issue approvals.

   Accessed 26 August 2026

4. CDS and Clearing Ltd — corporate website, live depository counters

   CDS and Clearing Ltd · Figures as displayed on 26 August 2026 · Tier 2 — Official publication

   Supports: 69 mutual funds with units in dematerialised form, alongside 286 companies and 81 bonds and debentures, and 8,052,070 beneficial owner accounts.

   Accessed 26 August 2026

5. Mutual Fund Guideline, 2069

   Securities Board of Nepal · 2069 (2012/13) · Tier 1 — Primary legal instrument

   Supports: The existence of a standing guideline under the Mutual Fund Regulation. The document is an image-only PDF whose contents could not be read, and no requirement is attributed to it here.

   Accessed 26 August 2026