Sunday, April 22, 2012

Sebon to amend mutual fund regulation


The one and a half year old Mutual Fund Regulation 2067 will go through an amendment to simplify the set up of funds even before a single mutual fund has come into operation.

The capital market regulator has sought amendment in regulation to revise provisions regarding experience of fund managers and supervisors and the registration fee in addition to introducing a clause that will allow Non Resident Nepalis (NRNs) to invest in Nepali capital market through mutual funds.

“We have already sent a proposal for the amendment to the Finance Ministry for its approval,” said director of Securities Board of Nepal (Sebon) Niraj Giri. “We had received complaints about the number of years of experience required for executives of fund managing companies and that of fund supervisors and that had posed a hindrance for the setting up of mutual funds, so

Sebon has proposed for the amendment,” Giri informed.

According to the existing regulation, fund supervisors need to have a minimum experience of 15 years in the relevant field and the chief executive of the fund manager needs to have 10 years of relevant work experience.

Mutual Fund Regulation 2067 finally came into operation in September 2010 after a long homework spanning more than a couple of years. Setting up of mutual funds requires a fund sponsor that promotes and establishes the fund, and a fund manager is appointed to prepare, operate and manage the schemes and handle investments. The undertakings of the fund manager are looked after by fund supervisors who ensure that the fund is being properly managed.

In Nepal, mostly commercial banks have applied as fund sponsors and their merchant banking entities as fund managers. Siddhartha Bank has already received the license to start a fund under its newly formed merchant banking arm –– Siddhartha Capital. The bank that was granted license in August 2011 is yet to launch its scheme. “Moreover, the amendment will allow investment companies of NRNs to establish a mutual fund and channel their investment in Nepal through the fund,” pointed out Giri. The amendment is seeking to permit investment companies belonging to NRNs to hold a stake of up to 49 per cent as fund sponsors.

Mutual funds have been recognised as the best medium to channelise NRN investment in the capital market by the committee formed to prepare guidelines to facilitate NRN investment. The government had opened capital market investment for NRNs in the budget of last fiscal year.

However, due to practical complications regarding the entry and exit of foreign retail capital, the matter had remained in theory only. NRNs can appoint licensed portfolio managers to undertake investments on their behalf.

However, there are difficulties regarding the exit mechanism for the returns and funds that NRNs have invested. The committee had recommended investment through a company for NRNs instead of by an individual due to the simpler provision for repatriation of returns for companies.

Source: THT

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