Regulations governing mutual funds in the offing

As work to create an act related to mutual funds has not made any progress, the Securities Board of Nepal (SEBON) is endeavoring to issue regulations which will allow the establishment of such institutions. Mutual funds benefit small investors as they sell shares to the public and invest the money obtained in the stock market and different businesses. The proposed regulation has fixed the criteria for opening mutual funds and set a mechanism regarding their functioning.

SEBON chairman Surbir Poudel said that the move was taken so that entrepreneurs wishing to open mutual funds should not have to wait for a long period. "After the Mutual Fund Act is enacted, the act will automatically guide such funds with the required adjustment," he said. He added that SEBON would send the proposed regulations to the Finance Ministry within the next two weeks for its approval. The proposed act, however, has been making the rounds of various ministries. As per the proposed regulation, a potential mutual fund should have a paid-up capital of at least Rs. 500 million but its net worth should be bigger than the paid-up capital. The company should have made a profit for three years consecutively.

However, these provisions will not be applicable for firms that the government has established under a special act with the aim of establishing mutual funds. There are two such firms -- Citizen Investment Trust (CIT) and NCM Mutual Fund. CIT handles the selling and buying of shares of the fund itself while NCM mutual funds are traded on the Nepal Stock Exchange. The appointment of a trustee, plan manager and depository are also essential to run mutual funds. "But these different firms should not have connected financial interest and ownership," the regulation states. The main job of the trustee is to regulate the work of the mutual fund. The job of the plan manager is to decide where and how much to invest and the depository works for settlement of share transactions.

A firm aspiring to function as a trustee should have a paid-up capital of at least Rs. 200 million and its net worth should not be lower than the paid-up capital. The firm's articles of association and the memorandum of association should also contain a provision permitting it to function as a trustee. The plan manager should have a paid-up capital of at least Rs. 100 million in which the promoter of the mutual fund must have at least a 51 percent share. Likewise, an aspiring depository should have a paid-up capital of at least Rs. 100 million.
Source:Kantipur