Govt paves way for institutional investment in stock market
KATHMANDU, June 22: The Ministry of Finance (MoF) has approved the Mutual Fund Regulations proposed by Securities Board of Nepal (Sebon) paving the way for more institutional investments which is expected to boost investment in the slowing domestic stock market.
After approving the proposed regulations, the Sebon, which regulates the securities market, had sent it to the MoF second week of April for endorsement.
Amid much delay in enactment of Mutual Fund Act, Sebon formulated Mutual Fund Regulations invoking Securities Act to open the way for operating mutual funds that are expected to streamline the investment from small investors.
"With the approval of the regulations, our securities market that is lacking in investment will see more inflow of capital from institutional investors through mutual funds," Mukti Shrestha, director of Sebon told Republica on Thursday. "Sebon will soon issue a notice announcing when the regulations would take effect."
He said the entry of mutual funds in the stock market will curb the existing dominance of speculative share trading.
The regulations that was approved by the MoF on Tuesday stipulates that any corporate body willing to set up a mutual fund has to have a paid-up capital worth Rs 1 billion, which must not be less than net worth of the company.
The regulation allows Sebon to cancel the registration of any mutual fund that fails to come up with any investment scheme within a year of registration.
Any corporate body willing to work as the fund manager or depository--an agency that takes account of securities transactions of unit holders--has to acquire licenses from Sebon.
As per the regulations, the fund manager must have a paid-up capital of at least Rs 100 million and net worth amounting to 70 percent of its paid up capital. Similarly, the regulations requires any corporate body willing to work as depository must have at least paid up capital worth Rs 100 million.
Fund supervisor may charge 0.2 percent of net asset value of the scheme of mutual fund as service fees where as fund manger and depository can charge 2 percent and 0.5 percent. Fund supervisor, fund manager and depository should submit 5 percent of service fees to Sebon within the two months of receipts.
Sebon can cancel the registration of a scheme if any mutual fund fails to launch schemes within three months of getting approval. Fund manger should invest at least 15 percent of the total asset of the scheme as seed capital in the first investment scheme.
Fund manager may generate investment amount from the sale of units in the areas such as securities listed in Sebon or stock exchange, initial public offering, debentures, treasury bills, bank deposits, market instruments and other areas as prescribed by Sebon.
As per the regulations, a maximum 25 percent of the total asset under any scheme of the mutual fund could be invested in foreign capital market.
The regulations allow the fund manager to take loan equivalent to maximum of 20 percent of net asset of scheme from the commercial banks for the maximum period of six months to repurchase, interest and dividend payment.
Fund manger can submit the financial statement to Sebon and Fund Supervisors within three months of the completion of fiscal year.
Sebon has already issued licenses to Nabil Mutual Fund and Siddhartha Mutual Fund to operate mutual fund scheme where as Laxmi Mutual Fund and NMB Mutual Fund are in the process to secure license.