Introduction of the project There are various productive and non-productive investment alternatives in the world economy. Among which banking and non-banking financial institutions, manufacturing companies, hydropower, tourism industry, etc are mainly focused. Investment companies are among all non- banking financial institutions. Investment companies are the outcome during 20th century to strengthen the power of small investor through institutional mechanism.
Investment companies has become center of attraction for most of the investor due to its feature of portfolio investment and various investment schemes targeted for the benefit of small investors in global scenario. Nepal, being a developing country mutual fund as a part of investment companies can be good sector for investment for people with low per capita income. Economic liberalization policy of Nepal has encouraged growth of mutual fund for the participation of small investors and along with capital market development.
This report is based on current scenario of mutual fund in Nepal. It analyzes the benefits provided by mutual fund, the interest of investors to invest in mutual fund and role of mutual fund to support the Nepalese economy. We, being the students of management prepare this project for the partial fulfillment of our study. We have focused on NCM mutual fund, first mutual fund in Nepal to broaden our knowledge. Objective of the study * To gain practical knowledge including theoretical knowledge about mutual fund performance. To gain experience on project work for future reference. * For the partial fulfillment of our study * To focus the achievement of mutual fund in Nepal * To find out the working mechanism of Mutual Funds * To find out the working procedure of NCM mutual fund in Nepal Limitations of the study We would like to mention that the report presented here may not meet the anticipation Some of the reasons are: * The subject matter of “NCM Mutual funds in Nepal” is a fraction of a larger whole, so all aspect of Mutual fund may not be covered. * Due to he limited work performance by NCM mutual fund, information provide by it was very less. * Being a student, resource constraint was another factor that has limited the scope of the study. HISTORY OF MUTUAL FUND in GLOBAL CONTEXT Investment companies first appeared in the nineteenth century as a way for small investors to invest in corporate equities. Equities were then considered highly speculative and exotic, requiring a great deal of specialized knowledge and market savvy. Investment companies promised the small investors a relatively safe and inexpensive access to the stock market.
The first modern investment company, the Scottish American Investment Company, was founded in London in 1860 at the beginning of a stock market boom that lasted until 1875. By then there were fifty investment companies in Britain. Many of them failed in the stock market crisis of 1890, and public interest in the stock market won until it was renewed by the boom of the 1920s. It was during the same boom of the 1920s that investment companies first became important in the United States. They had existed since the 1890s, but, by 1923, there were only fifteen with total assets of no more than 15 million.
However, as stock prices soared in the late 1920s and some investors rushed to get in on the action, investment companies mushroomed. By 1929, there were some 400, with $3 billion in assets. Most of these early investment companies were closed-end companies. Some offers “families” of trusts with deferring investment objectives, much like the mutual funds of today. The stock market collapse between 1929 and 1933 was, of course, a catastrophe for the investment companies. Poor management and risky investment practices that had gone unnoticed in the boom became painfully apparent in the collapse.
The 1930s saw a relatively rapid growth of open-ended companies (mutual funds), partly because of the disrepute into which the close-end companies had fallen. In particular, open-ended companies were not allowed to issue debt. The first mutual fund, the Massachusetts Investors Trust, had been formed in Boston in 1924. Despite the 2003 mutual fund scandals and the global financial crisis of 2008-2009, the story of the mutual fund is far from over. In fact, the industry is still growing. In the U. S. alone there are more than 10,000 mutual funds, and if one accounts for all share classes of similar funds, und holdings are measured in the trillions of dollars. Despite the launch of separate accounts, exchange-traded funds and other competing products, the mutual fund industry remains healthy and fund ownership continues to grow. HISTORY OF MUTUAL FUND in Nepal The history of mutual fund in Nepal started with flotation of NCM First Mutual Fund 2050 by NIDC Capital Market in 1993/94. The fund was open end type with 10 years maturity period which matures by the end of the fiscal year 2000/01. The investor’s right in the share was proportional to the number of units taken from the fund.
The fund performed well in the beginning when there was boom in the stock market. However its performance deteriorated in 1995 and its trading had to be suspended due to excessive selling pressure. After some time the fun was restructured into closed end fund to bring it back into operation. Nepal Rastra Bank and NIDC injected Rs. 45million and Rs 15million respectively to revive the fund and provide liquidity in 1995. After restructuring, NIDC worked as Manger and NIDC Capital Market worked as trustee for the fund.
NIDC had constituted a five member fund management committee which looked after the management of the fund. The NCM First mutual Fund term completed in 2001(2058), Hence another fund –NCM Mutual Fund 2059 was floated in 2059(2002). At the time of its termination the fund had offered two options to its participants either to refund or to participate in another new scheme to be operated and managed by NIDC Capital Market Ltd. in the name of NCM Mutual Fund 2059. SEBON approved this new mutual fund on August 9 2002.
Similarly, Citizen Unit Scheme (CUS) was operated by citizen investment trust CIT as a second collective investment scheme in 1994/95. It was incorporated under the citizen investment trust Act 1990. Introduction to Mutual funds Investment Companies: Generally, an “investment company” is a company (corporation, business trust, partnership, or Limited Liability Company) that issues securities and is primarily engaged in the business of investing in securities. Basically it is a corporation that provides “collective” investing opportunities to individuals, businesses and other type of investors.
An investment company invests the money it receives from investors on a collective basis, and each investor shares in the profits and losses in proportion to the investor’s interest in the investment company. The performance of the investment company will be based on (but it won’t be identical to) the performance of the securities and other assets that the investment company owns. The federal securities laws categorize investment companies into two basic types: Fig:1 Types of Investment companies a. Mutual funds (legally known as open-end companies) b.
Closed-end funds (legally known as closed-end companies) c. UITs (legally known as unit investment trusts). a. Mutual funds: Mutual funds, the largest and most popular open-end companies because they stand ready to issue new shares or redeem outstanding shares on a continuous basis. A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests typically in investment securities. It is also known as management of collected funds. A mutual fund is nothing more than a collection of stocks and bonds.
Mutual fund, as a company brings together a group of people and invests their money in stocks, bonds and other securities. Thus, a mutual fund is a corporation that pools large sums of money from individual investors who wish to save or make money. An individual or a team of professional money managers who invest the pool of money into stocks, bonds, or other securities run mutual funds. The combined holdings of a mutual fund are known as the fund’s portfolio. An individual who owns shares in a mutual fund does not have to worry about the investment portfolio.
By investing in mutual fund, your money is spread out and diversified among a wide range of stocks, bonds, or other securities, minimizing risk. We need not to buy bonds and stocks directly. Furthermore, we are not limited to the volatile performance of merely one or two stocks. In addition to this, paying minimal fees of investment (per annum), while earning money with the expertise of the mutual fund managers. It recruits professionally qualified or well-experienced persons to invest and manage the collected funds.
Pooling is the key to mutual fund investing. Currently, the worldwide value of all mutual funds totals more than $26 trillion. Being open-ended means that, at the end of every day, the fund continually issues new shares to investors buying into the fund and must stand ready to buy back shares from investors redeeming their shares at the then current net asset value per share. b. Closed-end funds: A close-end investment companies are more like a traditional, publicly traded corporation with fixed number of common stock outstanding.
The shares of closed end-fund are typically listed in stock exchange, which they are bought in the same way as any other corporate stock fund, their market price determined by supply and demand. Typically, an investor can acquire shares in a closed-end fund by buying shares on a secondary market from a broker, market maker, or other investor as opposed to an open-end fund where all transactions eventually involve the fund company creating new shares on the fly (in exchange for either cash or securities) or redeeming shares (for cash or securities).
The distinguishing features of closed-end fund in comparison to open-end funds are: * It is closed to new capital after it begins operating, and * Its shares (typically) trade on stock exchanges rather than being redeemed directly by the fund. * Its shares can therefore be traded during the market day at any time. An open-end fund can usually be traded only at the closing price at the end of the market day * A closed end fund usually has a premium or discount. An open-end fund sells at its NAV (except for sales charges). A closed-end company can own unlisted securities. c. UITs: A unit investment trust, commonly referred to as a “UIT”, is one of the types of investment companies. A UTI typically issues redeemable securities like a mutual fund, which means that the UTI will buy back an investors securities, at the investor’s request, at the approximate net value assets. A Unit Investment Trust (UIT) is a US investment company offering a fixed (unmanaged) portfolio of securities having a definite life. Each type has its own unique features.
For example, mutual fund and UIT shares are “redeemable” (meaning that when investors want to sell their shares, they sell them back to the fund or trust, or to a broker acting for the fund or trust, at their approximate net asset value). Closed-end fund shares, on the other hand, generally are not redeemable. Instead, when closed-end fund investors want to sell their shares, they generally sell them to other investors on the secondary market, at a price determined by the market. Why Mutual Funds: * Professional money managers manage mutual funds. By owning shares in a mutual fund instead of buying individual stocks or bonds directly, investment risk is spread out. * Because mutual fund buys and sells large amounts of securities at a time * Its costs are often lower than what you would pay on your own. How Mutual Funds Works: A mutual fund is a company that brings together money from many people and invests it in stocks, bonds, or other securities. (The combined holdings of stocks, bonds or other securities and assets the fund owns are known as its portfolio). Each investor owns shares, which represent a part of these holdings. The Goal of Mutual Fund:
The goal of a mutual fund is to provide an efficient way for an individual to make money. NCM Mutual fund 2059 NIDC Capital Markets provides mutual fund schemes to the public in Nepal, in line with objective of providing investment opportunities for sound economic development. With Mutual Funds investment is diversified by spreading the investment across a wide range of stocks, bonds and other securities. Risks are minimized and returns are assured. NCM Mutual Fund 2059 was launched with the objective of providing investors an opportunity for a secure investment. It has 1, 00, 00,000 units of Rs. 10 each.
Investors can buy and sell mutual fund units at Nepal Stocks Exchange like any other shares. Investors’ are guaranteed a minimum of 5% yearly dividend. Furthermore, the net assets value (NAV) is calculated on a monthly basis thereby providing the investors opportunity for capital gain in the long run. It is quoted as NCMMF in NEPSE. The Goal of NCMMF| The goal of a mutual fund is to provide an efficient way for an individual to invest by minimizing the risk through diversification of the investment among a wide range of stocks, bonds, and securities. | NIDC Nepal Industrial Development Corporation Ltd. NIDC), pioneer in Industrial Financing in Nepal, was established in July 1959 and has been playing a vital role in the development of the country by virtue of introducing many innovative concepts and development activities. While contributing to establish several prominent product industries like Bhrikuti Pulp and Paper, Everest Sugar, Himalayan Brewery – to name a few; and hotels like Soaltee, Hyatt, Annapurna and Fulbari – for instance, NIDC also has a significant role in the establishment of Industrial Districts, Nepal Stock Exchange, NIDC Capital Market etc. NIDC Capital Markets Ltd. NIDC Capital Markets Ltd. NCML) was established under the Finance Company’s Act 2042 under the initiative of Nepal Industrial Development Corporation along with the participation of other institutions such as National Life ; General insurance, National Productivity, Rastriya Beema Sansthan, Rastriya Banijaya Bank, Nabil Bank, Nepal Red Cross ; Provident Fund. It was registered with Company Registrer office on 1-10-2049 ; commenced its operation from 28-10-2049 . * Issue Management * Portfolio Management * Mutual Fund * Investment Advisory Features of NCM mutual fund 1. Total units of fund is 10 million. 2.
Face value of a unit is Rs 10. 3. It is closed-end type of fund of Rs 100 million. 4. Maturity period of fund is 10 years. 5. It is listed in Nepal Stock Exchange. 6. NIDC is the trustee organization whereas NIDC capital market is fund manager. 7. The fund has guaranteed at least 5% returns on the face value of the units. 8. NIDC and NIDC Capital markets have invested 15% (7. 5% each) of the total fund as seed money. 9. Security Board of Nepal (SEBON) is the regulator of this fund. 10. Price is determined in the exchange through the interaction of market forces based on demand and supply of mutual fund.
Investment policies of NCM Mutual Fund The investment policies of this fund are: 1. Investment of the fund on shares and debentures will be made on financially sound listed companies. 2. The fund can be invested in shares (equity as well as preference), debentures, bonds and term loans. The maximum limit on shares, debentures and term bond and term loan is 65%, 15% and 20% respectively. There is no limit on investing in government or government guaranteed securities. 3. The investment on securities of one company will be limited to 10% of paid up capital of that company. 4.
The investment in any organization or company will not exceed by 10% of the total assets of the fund. Calculation of NAV of NCM Mutual Fund * The companies which have transaction during last month in the Nepal Stock Exchange, their transaction cost is considered and price of the share is maintained. * The companies which does not have transaction during last month the previous price with their interest rate is maintained. * The Net Assets Value is determined after deducting total expenses from the total Assets value. Investment sectors: * Preferred stocks or Common stocks | Upto 65%| * Debt Instruments| Upto 15%| Long term or medium term loan to companies| Upto 20%| Advantages of investing in a NCM Mutual Fund are: 1. Professional Management: NCMMF is managed and supervised by investment professionals. As per the stated objectives set forth in the prospectus, along with prevailing market conditions and other factors, the mutual fund manager will decide when to buy or sell securities. This eliminates the investor of the difficult task of trying to time the market. Furthermore, NCMMF can eliminate the cost an investor would incur when proper due diligence is given to researching securities 2.
Convenience: With NCMMF buying and selling shares, changing distribution options, and obtaining information can be accomplished conveniently as they are handled by experts of management. Although a fund’s shareholder is relieved of the day-to-day tasks involved in researching, buying, and selling securities, an investor will still need to evaluate a mutual fund based on investment goals and risk tolerance before making a purchase decision. 3. Liquidity: Mutual fund shares are liquid and orders to buy or sell are placed during market hours of NEPSE trading. 4. Minimum Initial Investment
NCMMF have a minimum initial purchase of Rs 10 per unit of shares. If you purchase a mutual fund in an NCM, the minimum initial purchase requirement tends to be lower. 5. Diversification Using NCMMF can help an investor diversify their portfolio with a minimum investment. When investing in a single fund, an investor is actually investing in numerous securities. Spreading your investment across a range of securities can help to reduce risk. NCMMF invests in many stocks, bonds and debentures. Additional benefits * Return Potential * Low Costs * Transparency * Affordability Choice of schemes * Flexibility * Tax benefits Limitations of NCM Mutual Fund a. The investment sector of mutual fund is especially the commercial banks and Government Bond. Hence, the capital market of country directly affects the trading and assets value determination. b. If alternative for investment opportunity of primary or second capital market i. e. mutual fund is not developed then return expected from the project is difficult to obtain. c. Since it provides loan to the small investors as corporation houses the chances of loss remains in this mutual fund too.
Performance of NCM mutual fund The total fund of NCM mutual fund 2059 is 10 million units with Rs 10 face value of a unit. Among total units it was distributed to different investors. Unit Distribution on the basis of Investment: Particulars| Units| 1. Seed Capital| 15,00,000| 2. NIDC Capital Market Ltd. | 34,29,000| 3. Nepal Industrial Development Corporation| 16,97,600| 4. NCM First Mutual Fund – 2050| 13,26,800| 5. Units for General Public| 20,46,600| Total | 1,00,00,000| Table1 : Unit Distribution Fig2: Unit Distribution Statement of Assets (Rs. In million)
Particulars| 2002/03| 2003/04| 2004/05| 2005/06| 2006/07| 2007/08| 2008/2009| Mutual fund investment scheme * Share and debenture * Government bond * Bank depositNet Income * Dividend in share * Interest on govt. security and debentures * Bank Interest * Incomefrom sales ofsharesNet Assets ValueOutstanding sharesNAV per unitNo. of unit holders * Institutional * IndividualPer unit market price(Rs)Dividend(%)| 110. 3284. 431015. 892. 1381. 620. 0280. 49-105. 6910,00010. 572881182863-5| 114. 7195. 88108. 832. 160. 790. 615. 96118. 0210,00011. 82881182863-5| 152. 75 126. 211016. 54 1. 0. 810. 35 8. 42114. 9310,00014. 492559202539 -5| 210. 71 183. 531013. 68 2. 820. 810. 549. 71189. 1410,00018. 912481202461 115| 198. 30 86. 01093. 3 3. 50. 83. 914. 931410,00031. 42417202397 -8| 194. 7888. 951081. 933. 300. 810. 6732. 89488. 881000048. 892950202930 2415| 151. 5390. 8010. 0016. 343. 853. 490. 7226. 17536. 8510,00053. 692951202931 2415| Table 2: Statement of NCM Mutual Fund Assets Fig3: NAV of NCM Mutual Fund In the fiscal year 2007/2008, total investment reached to Rs. 194. 78 million and NAV reached to 488. 88. In the fiscal year 2008/2009, total investment reached to Rs. 51. 53 million and NAV reached to 536. 65 . The per unit market price of Fund by the end of the fiscal year 2008/2009 was Rs. 24. 00. The performance trend of the fund is presented in table above. Recent NAV of NCM Mutual Fund is Rs. 32. 94 for the month of Poush 2067 which is shown at the annex. Between March1 to April 1, 2010 NCM Mutual Fund (NCMMF) traded the highest number of shares amongst all the finance companies whose shares were traded in Nepal Stock Exchange (NEPSE) during the period. The NCMMF saw the trading of 156,700 units of shares worth Rs 4,376,981 in 5 transactions.
NCM Mutual Fund’s Dividend Distribution NCM Mutual fund provide 5% sure dividend for 4 years of it operation and 8% on 2006/07. NCM Mutual Fund distributed 15% dividend to its unit holders after 2007 onwards. Last Trading Last Traded Date| Last Trade Price| Net Chg. | %Change| Previous Close| Quote| 2011-02-01| Rs. 34. 68| Rs. 0. 68| 2. 00| Rs. 34| NCMMF| Listed Shares| Paid Up Value| Total Paid Up Value| Closing Market Price| Market Capitalization| Market Capitalization Date| 10,000,000. 00| Rs. 10| Rs. 100,000,000| Rs. 34. 68| Rs. 346,800,000| 2011-02-03| Table 4 :Trading of NCM Mutual Fund shares in NEPSE
The last trading of NCM Mutual fund share was on Feb 01 2011 at market price of Rs. 34. 68 with market capitalization Rs. 346,800,000. CONCLUSION From the report, we gain ideas about mutual funds in Nepal and their conditions. As mutual funds are taken as economic indicator of the economy of any country , NCM mutual fund cannot represent it due to lack of investment areas i. e. limited only on shares, bonds and deposit which create problem in portfolio management. But NCM mutual fund is managing its fund effectively even in limited scope for investment. It has Rs. 32. 94 NAV on Poush 2067 which seems to be good.
In spite of being first mutual fund in Nepal, NCM mutual fund has made gradual improvement i. e. 5% dividend in first four years, 8% in fifth year and 15% till now as it is running in its ninth year. . Bibliography www. google. com www. nepalstockexchange. com www. nepse. com www. nidccapitalmarket. com ANNEX NCM MUTUAL FUND-2059 Statement of assets As on poush 30, 2067 A] share Investment| | | Company’s Name| Number of shares| Assets value (Rs. )| Nabil Bank Ltd. | 57,280| 74,241,753. 60| Nepal Standard Charter Bank Ltd. | 14,983| 29,671,134056| Himalayan Bank Ltd. | 36,007| 23,313,092. 2| NIC Bank Ltd. | 8,958| 4,533,106. 32| Bank Of Kathmandu| 9,931| 5,596,317. 12| Nepal Investment Bnk Ltd. | 19,399| 11,763,553. 60| Everest Bank Ltd. | 2,225| 2,257,529. 50| Nepal SBI Bank | 10,382| 6,925,105. 46| Laxmi Bank Ltd. | 24,290| 9,576,818. 30| Kumari Bank Ltd. | 64,308| 19,194,651. 84| Siddhartha Bank Ltd. | 52,255| 15,602,820. 45| Lumbini Bank Ltd. | 16,467| 3,550,449. 87| Narayani Ntional Finance| 52,385| 8,726,902. 25| Goodwill Finance Ltd. | 14,727| 2,823,902. 25| Bhajuratna Finance Co. Ltd. | 2,750| 505,807. 50| Nava Durga Finance| 6,664| 1,175,529. 60|
Prudential Bittiya Sanstha| 36,720| 5,141,167. 20| Nepal Aawash Bikash Bank Ltd. | 1,598| 388,314. 00| National Life Insurance Co. Ltd. | 77,068| 27,233,519. 16| Premier Insurance| 2,108| 333,064. 00| Life Insurance co. (Nepal)Ltd. | 12,500| 7,742,125. 00| Butwal Power Co. Ltd. | 2,552| 1,937,146. 64| Unilever Nepal| 1,840| 10,869,487. 20| Botler’s Nepal Terai| 6,400| 4,660,288. 00| Soltee Hotel Ltd. | 105,958| 24,904,368. 32| Nepal Doorsanchar Ltd. | 200| 88,446. 00| Citizen Bank International| 5,500| 199,064. 00| NMB Bak Ltd. | 150| 1,405,580. 00| Manakamana Bikash Bank Ltd. | 100| 17,820. 0| Uddham Bikash Bank Ltd. | | 19,333. 00| Investmaent in non – transacted company| | 22,698,185. 36| Total| | 327,095,773. 37| 1. 2 % of transaction cost | | 3,925,149. 28| Net investment amount| | 323,170,624. 09| B] Investment in Development 2070 | | 10,000,000. 00| Nabil Bank Bond 2072| | 5,000,000. 00| Laxmi Bank Bond 2072| | 5,000,000. 00| Siddhartha Bank Ltd. Bond 2072| | 5,000,000. 00| Advance payment of share investment| | 874,270. 00| C] other Assets | | 4,602,822. 45| Bank (Current Account)| 1,988. 24| | Bank (Fixed Deposit)| 3,492,819. 15| | Other current Asstes| 794,690. 6| | Outstanding operating Expenses| 313,324. 60| | D] Current Liabilities| | 15,907,254. 80| Operating Expenses| | 8,32,158. 93| Net Assets| | 329,408,303. 53| Total unit| | 10,000,000| Net Assets Value (NAV) per unit| | 32. 94| Listing of NCM mutual fund in NEPSE Trading on the floor of the NEPSE is restricted to listed corporate securities and government bonds. Only 137 companies have listed their securities to make them eligible for tradingwhen NCMMF become listed. Besides this, NCM Mutual Fund enlisted its units to make them eligible to trade in the floor. Process to obtain membership
Corporate bodies wishing to be member shall have to submit application in prescribed format within specified time along with certificate of incorporation, tax certificate, Memorandum of Association , Articles of Association and concerned Act, rules and regulations in the case of corporate body other than company after the incorporation and the projected B/S and PL A/C for the next three years, last three years audited financial statement, if the year of incorporation is less than three years, the B/S and A/C of investment in shares of subsidiary company or investment made in its parent company’s share capital, details of share investment in any other company other than subsidiary, the name, address, number of shares ubscribed and the amount invested by shareholders having more than 5% of the share capital need to be submitted. Listing & Annual Fee to be Submitted FOR DEBENTURES AND MUTUAL FUNDS S. No| Issued Capital| Listing Fee| Annual Fee As Per issued Capital| 1. | Upto Rs. 10 million| 0. 20% or minimum 15,000| Rs. 15,000| 2. | Rs. 10 million to Rs. 50 million| 0. 15% or minimum 45,000| Rs. 25,000| 3. | Rs. 50 million to Rs. 100 million| 0. 10% or minimum 75,000| Rs. 35,000| 4. | Above Rs. 100 million| 0. 075% or minimum 100,000| Rs. 50,000| NCM mutual fund is under 3 no category as it issue shares of Rs 100 million. It has 10million units of shares of Rs. 10 each.