Why Mutual Funds in Nepal Remain Undervalued by the Public

While mutual funds have become a mainstream investment vehicle across the globe, in Nepal, they continue to play second fiddle to direct stock investments and IPO applications.

Despite the growing number of retail investors, the majority of capital continues to flow toward:

IPO frenzy
Speculative short-term stock trades
Bonus share hunting

But what about mutual funds?

Funds like NIBLSF, NMB50, CMF1, or open-ended funds like Laxmi Value Fund offer:

Professional asset management
Built-in diversification
Liquidity and low entry barriers

Yet, mutual fund NAVs often trade below par, and many investors don’t even know how they work.

So why are mutual funds still undervalued in Nepal? And could this be a hidden opportunity for those who understand the system?

📊 What Are Mutual Funds and How Do They Work in Nepal?

Mutual funds are investment vehicles where money from multiple investors is pooled to invest in a portfolio of stocks, bonds, or other assets.

Types in Nepal:

Closed-End Funds (10 years, listed on NEPSE)
- Traded like stocks (e.g., NIBSF2, NMB50)
- NAV and market price may differ
Open-End Funds
- Bought/sold through fund manager at NAV
- No stock exchange listing (e.g., Laxmi Value Fund)

Managed by mutual fund companies like:

NIBL Ace Capital
Laxmi Capital
Siddhartha Capital
NMB Capital
NIC Asia Capital

🧠 Benefits of Mutual Funds (Yet Ignored by Public)

✅ 1. Diversification

Investors own a piece of 25–50 companies, reducing single-stock risk.

✅ 2. Professional Management

Fund managers monitor market trends, rebalance portfolios, and follow compliance rules.

✅ 3. Low Capital Requirement

Minimum investment starts from Rs. 1000 in open-ended funds or Rs. 10/share in closed-end units.

✅ 4. Liquidity

Open-ended funds can be redeemed any time; closed-end funds can be sold on NEPSE.

✅ 5. Dividends + NAV Growth

Some funds offer annual dividends, others grow NAV value—depending on strategy.

📉 Why Public Participation Is Still Low

⚠️ 1. Lack of Awareness

Most new retail investors:

Don’t know what NAV is
Don’t track fund portfolios
Assume mutual funds are “boring” compared to stocks

⚠️ 2. IPO Obsession

Given the high demand and short-term profits from IPOs, investors prefer applying to every new issue than investing in long-term vehicles.

⚠️ 3. Discount to NAV Confuses Investors

Many closed-end funds trade below NAV:

Example: NIBSF2 NAV = Rs. 12.5, Market Price = Rs. 10.2
Investors think the fund is “losing money” without realizing it may be undervalued.

⚠️ 4. Misleading Expectations

Investors expect:

Instant returns
20–50% yearly gains
Bonus shares and rapid price growth

Mutual funds, in contrast, grow steadily—this doesn’t appeal to speculators.

🔁 Closed-End vs Open-End Funds: A Clarity Gap

Feature	Closed-End	Open-End
Traded on NEPSE?	Yes	No
Can trade below NAV?	Yes	No
Entry/Exit Price	Market Price	NAV
Liquidity Risk	Medium	Low
Retail Participation	Moderate	Low

Open-end funds are ideal for SIP (systematic investment), but have near-zero public awareness. Even banks promoting them rarely educate customers on benefits.

📊 Current Mutual Fund Landscape (2081/82)

27+ active closed-end funds on NEPSE
Over Rs. 27 billion in assets under management (AUM)
Only 5–6 open-ended schemes
Trading volume of mutual funds < 1% of total NEPSE daily volume

Despite scale, mutual funds remain undervalued and under-discussed.

🧪 Case Study: NMB50 vs Retail Trading

Launched: FY2076
NAV Growth: From Rs. 10 → Rs. 16.4
Dividends: Paid 8–12% annually
Trading Price: Still hovers around Rs. 12.5
Meanwhile, many investors lost money chasing speculative stocks like microfinance shares or failing IPO listings

Lesson: Mutual funds delivered steady gains without hype.

🛠️ How Nepalytix Helps Track Mutual Funds Smarter

Tools:

NAV Tracker: Compare NAV vs market price
Dividend History Dashboard: Track fund distributions
Performance Ranking: Based on return, AUM, volatility
Mutual Fund vs Index Comparison: See if fund beats NEPSE

Nepalytix helps long-term investors find value in stable instruments often ignored by noise traders.

🧭 Tips to Invest in Mutual Funds Wisely

✅ Always check NAV vs Market Price before buying
✅ Read the fund’s quarterly report—what sectors are they exposed to?
✅ Understand the fund type: Is it dividend-oriented or growth-oriented?
✅ Use open-ended funds for monthly savings (SIP strategy)
✅ Reinvest dividends for compounding

⚠️ Common Myths About Mutual Funds in Nepal

Myth	Reality
“NAV below 10 = loss”	NAV fluctuates; long-term growth matters
“They don’t give bonuses”	They give dividends, not bonus shares
“Funds don’t grow fast”	Some outperform NEPSE quietly
“Hard to exit”	Open-end funds can be sold anytime at NAV

🔮 Future Outlook: Mutual Fund Revolution in Nepal?

📈 Regulatory Push

SEBON and NRB are encouraging:

More open-ended schemes
Mutual fund literacy
Digital distribution (via banks and mobile apps)

💡 Growing Potential

If banks educate account holders, and fund houses improve transparency, mutual funds could:

Become retirement tools
Support long-term wealth creation
Reduce speculative bubbles in NEPSE

📌 Checklist: Should You Invest in Mutual Funds?

Question	If Yes → Consider MF
Do you want passive income?	✅ Yes
Do you have low risk tolerance?	✅ Yes
Do you lack time to monitor stocks?	✅ Yes
Do you want to beat inflation steadily?	✅ Yes
Are you chasing quick profits?	❌ Avoid

🔚 Conclusion: Mutual Funds Deserve More Respect

Mutual funds in Nepal are stable, regulated, and accessible—yet remain undervalued due to lack of hype, education, and transparency.

But smart investors see through the noise. They know:

Long-term compounding wins over short-term gambling
Professional managers beat emotional trades
Real wealth comes from strategy, not luck

Mutual funds may not give you overnight riches—but they’ll likely help you sleep better at night.