Banking Exam Question - What is Mutual Funds? What are the Features, Benefits, Types and Status of Mutual Funds in Nepal? Explain

What is Mutual Funds? What are the Features, Benefits, Types and Status of Mutual Funds in Nepal? Explain

Mutual funds are popular investment companies in investment world. Investment through mutual fund is considered less risky in comparison to self investment. Mutual fund is for the people with little amount of money, no idea and no time to collect and analyze information about securities market.

Benefits of mutual funds investment

1.     Professional investment management

2.     Diversification

3.     Low cost

4.     Convenience and flexibility

5.     Liquidity

6.     Transparency

7.     Variety

Types of mutual funds

Mutual funds are considered managed fund. There are two types of mutual fund 1) open-ended mutual fund & 2) close-ended mutual fund. The managed investment company hires a management company to manage the portfolio for an annual basis.

1)    Open-ended mutual fund:

An open-ended mutual fund is an investment company which can issue and redeem shares at any time either in retail or in bulk without a limit on the number. The price at which units in an open-ended fund are issued or can be redeemed will vary in proportion to the net asset value (NAV) of the fund.

NAV per share/unit = total net assets value/number of units outstandings

2)    Close-ended fund:

A close-ended fund is an investment company with a limited number of shares and is similar to share issued by a company. An investor can buy/sell units of a close-ended fund through brokers in the secondary market. The price of a close-ended fund is determined by the market. The market price of a fund’s unit is often higher or lower than per unit NAV.

Mutual fund in Nepal

NIDC capital market (NCM) mutual fund is the only one mutual fund in Nepal. It was started in 2050 BS (1993). At the beginning it was issued as an open-ended fund but after financial problem, it is converted into close-ended fund. It is listed at the NEPSE and an investor can buy/sell the units through brokers at the NEPSE. Nowadays various banks were launched mutual fund such as;

List of Mutual Funds in Nepal

·        Siddhartha Equity Oriented Scheme

·        Laxmi Value Fund

·        Nabil Balanced Fund

·        NMB Sulav Investment Fund

·        Global IME Samunnat Scheme

·        NIBL Sambriddhi Fund

·        Nabil Equity Fund

·        NMB Hybrid Fund

Mutual funds and their investment policies

·        Equity fund

·        Fixed income fund

·        Balanced fund

·        Assets allocation fund

·        Index fund

·        Specialized sector fund

Cost of investing in mutual funds

• Front-end load
• Back-end load
• Operating expenses
• Promotional expenses