Open-Ended Mutual Funds in Nepal: Should You Invest In One?

With the IPO of Siddhartha Systematic Investment Scheme (SSIS), there are now 3 open-ended mutual funds in Nepal.

Should you consider investing in one? Let’s find out.

Table Of Content

What Is An Open-Ended Mutual Fund?

An open-ended mutual fund is a mutual fund that doesn’t have a fixed date of redemption or maturity.

Investors in an open fund can cash out anytime they want at the NAV (net asset value) of the previous day.

The fund manager publishes the NAV daily on their website.

Difference Between Open-Ended & Closed-Ended Mutual Funds

The main difference between open-ended and closed-end investment funds is that investors in an open fund can only buy or sell their units with the fund manager. In contrast, closed-ended funds can be purchased or sold on the stock exchange, i.e. NEPSE.

Another big differentiator between open-ended and closed-ended mutual funds is the exit load (wait time before you can sell your units) that only applies to open-ended funds.

For example, Siddhartha Systematic Investment Scheme (SSIS), which is an open-ended fund, has a three year wait period from the date of purchase. So, if you want to cash out your investment within 3 years of purchase, you’ll be charged a 1.5% fee.

In contrast, no such exit load exists with closed-ended funds.

The third key difference is that open funds usually have a lower fund management fee than their counterparts.

Fund Management Fees

NIBL Open-Ended Mutual Fund1.25% p.a
NIC Asia Dynamic Debt Fund1.50% p.a.
Siddhartha Systematic Investment Scheme (SSIS)1.50% p.a.
Yearly fund management fees for the 3 open-ended funds in Nepal.

In comparison, most closed-ended funds have a yearly management fee of 1.75%-2.00% p.a.


Which is better open-ended or closed-ended mutual funds?

It depends.

On the one hand, open-ended funds in Nepal usually have a comparatively lower fund management fee compared to closed-ended funds.

On the other hand, closed-ended funds are more attractive to buyers because they often sell at a discount to their net asset value (NAV). That difference may be realised as a capital gain when the fund matures.

Another point to consider is that since open funds can only be bought at their NAV, no such opportunities exist for investors looking to buy in. However, if you’re an investor already and your fund appreciates in value, and you wish to sell, then you’ll get precisely what the NAV is, less any exit fees.

Open-ended funds may be a better option for investors who have a longer time horizon as then they’ll be to avoid the exit loads. Also, since you do not have to set up an account with a stockbroker to buy or sell these units, it makes it ideal for beginner or time-poor investors.


Case study 1: NIBL Sahabhagita Fund (NIBLSF)

NIBL Sahabhagita Fund (NIBLSF) started in June 2019 as Nepal’s first open-ended mutual fund. The fund is managed by NIBL Ace Capital Limited and sponsored by Nepal Investment Bank Limited.

From a starting NAV of NRs 9.95 (10 less costs) in 2019, the fund has grown its NAV to NRs 17.78 by July 2021. In addition, the fund also provided an 8.25% dividend for 2019-2020.

If you had invested NRs 100,000 in the beginning and reinvested the dividend, your investment would have grown to NRs 186,500 (100,000 (principal) + 77,800 (capital value gain) + 8,700 (dividend). The fund returned 86.5% over two years till July 2021.

Not only that, the fund management fee for NIBLSF is the lowest in the industry at 1.25% p.a. compared to its peers.

Exit loads for NIBLSF: Wait time before you can sell it (penalty)

  • 1.5% of applicable NAV within 6 months of purchase
  • 1.25% of applicable NAV within 6-12 months of purchase
  • 1% of applicable NAV within 12-18 months of purchase
  • 0.75% of applicable NAV within 18-24 months of purchase
  • No exit load is levied after 2 years of purchase.

Case Study 2: NIC Asia Dynamic Debt Fund

NIC Asia Dynamic Debt Fund is an open-ended mutual fund that mostly only invests in debt instruments (up to 65%) such as debentures and bonds.

The NAV of this scheme was NPR 10.86 as of mid-March 2021, with ~9% growth since its launch against ~25% growth in NEPSE during the same period.

Managed by NIC Asia Capital, it is the first of its kind and is generally accepted to be lower risk than other types of funds that invests in both equities and debt as bonds and debentures are not subject to extreme volatility in their prices like individual stocks.

This brings us to an essential point since they mainly invest exclusively in debt, the expected return is also accepted to be lower.

The exit load during the sale(exit) for this fund is:

  • Within 6 months of purchase = 1.5%
  • Within 6-12 months of purchase= 1.25%
  • Within 12-18 months of purchase = 1.00%
  • Within 18-24 months of purchase = 0.75%
  • After 24 months of purchase = Not applicable.

NIC Asia Dynamic Debt Fund may be a good option for investors looking to minimise their risks or diversify their portfolio with a basked of different debts.


Case study 3: Siddhartha Systematic Investment Scheme (SSIS)

Only the third open-ended mutual fund in Nepal, Siddhartha Systematic Investment Scheme (SSIS) is managed by Siddhartha Capital limited and sponsored by Siddhartha Bank.

As per their prospectus, the fund will primarily invest in equity and equity-related securities.

As a point of note, the exit load wait period of 3 years for the fund is relatively high compared to NIBLSF:

  • 1.5% of applicable NAV within 3 years of purchase
  • No exit load to be levied after 3 years of purchase

Its fund management fee is also slightly higher at 1.50% of NAV compared to NIBLSF’s 1.25%.

Interestingly, with the scheme, units holders can choose between a:

  • Growth Option wherein dividends can be reinvested by purchasing additional units), or
  • Dividend option wherein the dividend can be paid out to unitholders at the time of dividend distribution.

This fund may be suitable for investors who want a simple and straightforward way to invest with an investment horizon of at least 3 years or more.

Which Is The Best Open-Ended Fund In Nepal?

The best open-ended fund is the one that fits your investment goal, risk appetite and time horizon.

E.g. If you’re risk-averse, then NICA’s Dynamic Debt Fund may be suitable for you.

And if you’re cost-sensitive, then NIBLSF’s lower yearly fee and shorter exit load may be attractive to you.

It all depends on what you want to achieve. Happy investing!

4 replies on “Open-Ended Mutual Funds in Nepal: Should You Invest In One?”

Hi Dilip,

I’m glad to hear that. You should start by opening a demat account and start applying to IPOs if you havent already. To buy an open ended mutual funds on the market, you would also need to open an account with a broker. Take your time to find a good broker and Happy investing.

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