Mutual Fund

Many investors want to diversify their holdings in order to

limit their exposure to risk. However, most individual
investors cannot afford the fees and commissions necessary
to take large positions in a number of individual securities.
Fortunately, they can take advantage of mutual funds.
There are a number of benefits to mutual funds, though it is
crucial to examine the downsides, as well as your own needs,
goals, and risk comfort, to determine whether mutual fund
investment is right for you.
Mutual funds are investment vehicles that pool money
from many different investors to increase their buying power
and diversify their holdings. This allows investors to add a
substantial number of securities to their portfolio for a much
lower price than purchasing each security individually.
A Mutual Fund is a trust that pools the savings of a
number of investors who share a common financial
goal. The money thus collected is then invested in
capital market instruments such as shares, debentures
and other securities.
The income earned through these investments and the
capital appreciation realized are shared by its unit
holders in proportion to the number of units owned by
them. Thus a Mutual Fund is the most suitable
investment for the common man as it offers an
opportunity to invest in a diversified, professionally
managed basket of securities at a relatively low cost.
There are two types of mutual funds:
Actively Managed Funds. With actively managed
funds, professional money managers handpick
investments according to the particular mutual fund’s
objectives. These objectives vary widely, but could be
investing overseas in small start-ups, focusing on a
particular industry (such as oil), or diversifying
between large-cap stocks and bonds.

Index Funds. Index funds, on the other hand, are

not actively managed, as they simply seek to replicate
holdings in an index like the S&P 500.
Mutual funds
A mutual fund is an investment vehicle that is made up
of a pool of funds collected from many investors for the
purpose of investing in securities such as stocks, bonds,
money market instruments and similar assets.
Mutual funds are operated by money managers, who
invest the fund's capital and attempt to produce capital
gains and income for the fund's investors. A mutual
fund's portfolio is structured and maintained to match
the investment objectives stated in its prospectus.
One of the main advantages of mutual funds is that they
give small investors access to professionally managed,
diversified portfolios of equities, bonds and other
securities, which would be quite difficult (if not
impossible) to create with a small amount of capital. Each
shareholder participates proportionally in the gain or loss
of the fund. Mutual fund units, or shares, are issued and
can typically be purchased or redeemed as needed at the
fund's current net asset value (NAV) per share, which is
sometimes expressed as NAVPS
You can make money from a mutual fund in three ways:

1) Income is earned from dividends on stocks and interest on

bonds. A fund pays out nearly all of the income it receives
over the year to fund owners in the form of a distribution.
2) If the fund sells securities that have increased in price, the
fund has a capital gain. Most funds also pass on these gains to
investors in a distribution.
3) If fund holdings increase in price but are not sold by the
fund manager, the fund's shares increase in price. You can
then sell your mutual fund shares for a profit.
Funds will also usually give you a choice either to receive a
check for distributions or to reinvest the earnings and get
more shares
Types of Mutual Fund
By Structure
 Open-Ended – anytime enter/exit
 Close-Ended Schemes – listed on exchange, redemption after
period of scheme is over.

By Investment Objective

 Equity (Growth) – only in Stocks – Long Term (3 years or more)
 Debt (Income) – only in Fixed Income Securities (3-10 months)
 Liquid/Money Market (including gilt) – Short-term Money
Market (Govt.)
 Balanced/Hybrid – Stocks + Fixed Income Securities (1-3 years)

Other Schemes
 Tax Saving Schemes
Risks
Historical analysis
Return is remembered, Risk forgotten

Risk = Potential for Harm

Market Risk

Non-Market Risk

Credit Rate Risk

ADVANTAGES OF MUTUAL
FUNDS
The advantages of investing in a Mutual Fund are:

 Professional Management
 Diversification
 Convenient Administration
 Return Potential
 Low Costs Liquidity
 Transparency Flexibility
 Choice of schemes
 Tax benefits
 Well regulated
Advantages of Mutual Funds
• Professional Management - The primary advantage of funds is the
professional management of your money. Investors purchase funds
because they do not have the time or the expertise to manage their
own portfolios. A mutual fund is a relatively inexpensive way for a
small investor to get a full-time manager to make and monitor
investments.

• Diversification - By owning shares in a mutual fund instead of

owning individual stocks or bonds, your risk is spread out. The
idea behind diversification is to invest in a large number of assets
so that a loss in any particular investment is minimized by gains in
others. In other words, the more stocks and bonds you own, the
less any one of them can hurt you (think about Enron). Large
mutual funds typically own hundreds of different stocks in many
different industries. It wouldn't be possible for an investor to build
this kind of a portfolio with a small amount of money.
Economies of Scale - Because a mutual fund buys and
sells large amounts of securities at a time, its
transaction costs are lower than what an individual
would pay for securities transactions.

• Liquidity - Just like an individual stock, a mutual

fund allows you to request that your shares be
converted into cash at any time.

• Simplicity - Buying a mutual fund is easy! Pretty well

any bank has its own line of mutual funds, and the
minimum investment is small. Most companies also
have automatic purchase plans whereby as little as
can be invested on a monthly basis
Reinvestment of Income. Another benefit of mutual funds
is that they allow you to reinvest your dividends and interest
in additional fund shares. In effect, this allows you to take
advantage of the opportunity to grow your portfolio without
paying regular transaction fees for purchasing additional m
Range of Investment Options and Objectives. There are
funds for the highly aggressive investor, the risk averse, and
the middle-of-the-road investor – for example, emerging
markets funds, investment-grade bond funds, and balanced
funds, respectively. There are also life cycle funds to ramp
down risk as you near retirement. There are funds with a
buy-and-hold philosophy, and others that are in and out of
holdings almost daily. No matter your investing style, there’s
bound to be a perfect fund to match it.
Disadvantages of Mutual Funds
• Professional Management - Many investors debate whether
or not the professionals are any better than you or I at picking
stocks. Management is by no means infallible, and, even if the
fund loses money, the manager still gets paid.

• Costs - Creating, distributing, and running a mutual fund is an

expensive proposition. Everything from the manager's salary to
the investors' statements cost money. Those expenses are passed
on to the investors. Since fees vary widely from fund to fund,
failing to pay attention to the fees can have negative long-term
consequences. Remember, every dollar spend on fees is a dollar
that has no opportunity to grow over time. (Learn how to escape
these costs in Stop Paying High Mutual Fund Fees.)
• Dilution - It's possible to have too much diversification.
Because funds have small holdings in so many different
companies, high returns from a few investments often don't
make much difference on the overall return. Dilution is also the
result of a successful fund getting too big. When money pours
into funds that have had strong success, the manager often has
trouble finding a good investment for all the new money.
• Taxes - When a fund manager sells a security, a capital-gains
tax is triggered. Investors who are concerned about the impact
of taxes need to keep those concerns in mind when investing in
mutual funds. Taxes can be mitigated by investing in tax-
sensitive funds or by holding non-tax sensitive mutual fund in a
tax-deferred account.

No Control Over Portfolio. If you invest in a fund, you give

up all control of your portfolio to the mutual fund money
managers who run it.
 Are Mutual Funds Right for You?
Considering that there are more mutual funds on the
market than there are individual stocks, the chances of
finding one right for you are high. That said, mutual funds
are most appropriate for people who don’t have the time or
inclination to be heavily involved in managing an
investment portfolio, and don’t mind paying an annual
expense ratio to have a professional do it for them. They’re
also ideal for people who simply can’t afford the level of
diversification that most funds offer.
Still, if you seek diversification, but not necessarily
professional management, index funds with their low
expense ratios may be a good fit.
Number of mutual funds in the United
States from 1997 to 2018
Number of mutual funds in the
United States from 1997 to 2018
In 2018, there were 9,599 mutual funds in the United
States. While there was a slight decrease after the
Financial Crisis, the number of these funds increased
during the recovery.
Key Trends in the Mutual Fund
Industry(India).
“Mutual fund (MF) investments are subject to market
risks.” Well, that’s true. But if you make an informed
investment, you can easily say “Mutual funds are the
right choice. As people understand more about this
investment tool and its effectiveness in the medium-
to-long-term, the total Assets Under Management
(AUM) of the mutual fund houses keep expanding
rapidly.
Key Trends in the Mutual
Fund Industry(India).
Indian MF industry’s AUM has increased from Rs. 4.17
trillion (4.17 lakh crore) in March 31, 2009 to Rs. 23.80
trillion (23.80 lakh crore) by March 31, 2019, more than
5 times in just 10 years.
More and more investors have begun to keep their
faith in mutual funds in the last four and half years.
During this period, the creation of folios (MF accounts)
has increased steadily.
The mutual fund industry is expecting to
witness the following major trends:
1. Mass Adoption
Fund houses are extremely optimistic about the
industry’s future. Their expectations have got a major
boost after the AUM increased by Rs. 5.5 trillion (or Rs.
5.5 lakh crore) between March 2017 and March 2019.
Experts believes that there would be mass adoption of
MFs among Indian investors, thanks to increasing
digitization as well as lower minimum investment
amount being promoted by platforms such as Paytm..
2. SIPs will Keep Increasing
Systematic investment plan (SIP) has emerged as the
backbone of the MF industry. SIP inflows increased by
158% (Rs. 3,122 crore to Rs. 8,055 crore) from April 2016
to March 2019.
3. Changes in Regulatory Environment
The total expense ratio of the funds has decreased,
following a string of regulations. In fact, there has also
been a consequent fall in the revenues of the
distributors as well as independent financial advisors.
Therefore, the distributors may refrain from pushing
the MF products due to lack of incentives
Many fund houses believe that the next wave of
increase in mutual fund investments will come from
rise in digitization, as well as the use of online platforms
by the investors for investment. Growth in mutual fund
investments in the coming 2-3 years will come from
increased adoption of digital and online platforms as a
means of investment by retail investors.
The mutual fund industry in
India
The mutual fund industry in India is growing at an
exponential pace. The Indian mutual fund industry
recorded an Average Assets Under Management
(AAUM) of Rs. 23.16 trillion as on February 28, 2019.
The AUM of the industry stood Rs. 5.09 trillion on
February 28, 2009, which means the Indian mutual
fund industry has registered a more than 4 ½ fold
increase in a period of 10 years.
There are as many as 44 AMFI (Association of Mutual
Funds in India) registered fund houses in India which
together offer more than 2,500 mutual fund schemes.
The wide array of funds often make it a little difficult
for investors to choose the best scheme for them. To
ease this process, we list out the 10 most popular
mutual fund houses in India along with the 10 most
popular schemes across all mutual fund categories
namely equity, debt and hybrid.
Example
Mutual Funds in Nepal
With the flotation of NCM Mutual Fund in 2050 B.S.
(1993 A.D.), the Nepali market entered into the era of
mutual funds. It was an open-ended scheme with a
collected fund of just Rs. 100 Million. These days,
merchant bankers are coming up with funds 5 to 10
times larger than that, which have become a pivotal
part of the Nepali stock market.
Mutual Fund Schemes Trading in The
Stock Market in 2020
Currently, there are 18 mutual fund schemes running
in the Nepali stock market (17 closed-end and 1 open-
end mutual fund scheme). Three mutual funds are
upcoming and are in the pipeline to be approved.
These mutual funds have to be approved by SEBON
(Securities Board of Nepal) first to publish the offer
letter and accept the funds from general public as
initial public offerings. When the fund units are
allotted, they are listed in NEPSE (Nepal Stock
Exchange) where they can be freely bought and sold.
NEPSE is Nepal's only stock exchange market.
Open end Mutual Fund in Nepal
NIBL Sahabhagita Fund” -an Open Ended Mutual Fund
Scheme
 It will not be listed in Nepal Stock Exchange (NEPSE), rather the fund
manager will be buying and selling the units based on Net Assets
Value (NAV)
 Investors can freely buy and sell the shares of an open-ended mutual
fund from the fund manager
 The open-ended fund doesn't have a specified maturity date
 The investors won't have to incur any entry load to purchase the
mutual fund shares
 You can buy a minimum of 1000 units and the per unit par value is Rs
10
 The fund size can increase based on the demand of investors or a new
scheme can also be introduced.
List of Mutual Funds in Nepal
 Laxmi Value Fund-1 (LVF1)
 Global IME Samunnat Scheme-1 (GIMES1)
 NIBL Sambriddhi Fund-1 (NIBSF1)
 Nabil Equity Fund (NEF)
 NMB Hybrid Fund L-1 (NMBHF1)
 NIBL Pragati Fund (NIBLPF)
 Laxmi Equity Fund (LEMF)
 Siddhartha Equity Fund (SEF)
 Sanima Equity Fund (SAEF)
 NIC Asia Growth Fund (NICGF)
 Citizens Mutual Fund-1 (CMF1)
 Nabil Balanced Fund-2 (NBF2)
 Citizens Mutual Fund-2 (CMF2)
 NMB 50 Fund (NMB50)
 Siddhartha Investment Growth Scheme - 2 (SIGS2)
 NIC Asia Balance Fund (NICBF)
 Sunrise First Mutual Fund (SFMF)
 NIBL Sahabhagita Fund (NIBLSF) - the only open-end mutual fund scheme of Nepal
Recently Matured Mutual Funds in Nepal:
Siddhartha Investment Growth Scheme-1 (SIGS1)
Nabil Balanced Fund-1 (NBF1)
NMB Sulav Investment Fund-1 (NMBSF1)
Siddhartha Equity Oriented Scheme (SEOS)
These mutual funds are managed by merchant bankers
(fund managers) and sponsored by a commercial bank
('A' class banks licensed by Nepal Rastra Bank). Only
those merchant bankers that are direct subsidiaries of
commercial banks can float and manage mutual funds
in Nepal. As such, mutual fund companies are full
subsidiaries of commercial banks.
List of mutual fund companies:
NIBL Capital Markets
Laxmi Capital Market
Global IME Capital (previously known as Elite Capital)
Siddhartha Capital
NMB Capital
Nabil Investment Banking Ltd.
CBIL Capital
Prabhu Capital (previously known as Growmore Merchant Banking)
Civil Capital Markets
NIC Asia Capital
Sunrise Capital
Links for further study
https://toughnickel.com/personal-finance/Mutual-
Funds-in-Nepal
https://www.sebi.gov.in/statistics/statistics.html
https://www.bankbazaar.com/mutual-fund/list-of-
mutual-funds-in-india.html