A security market, or financial market, can be defined as a mechanism

for bringing together buyers and sellers of financial assets in order to

facilitate trading (Sharpe, Alexander & Bailey, p.47). In other words
security market is a component of the wider financial market where
securities can be bought and sold between subjects of the economy, on
the basis of demand and supply. Mutual fund is considered as an
effective way of raising capital not only for commercial enterprises but
also giving an opportunity for investment to each and every individuals
and institutions. A mutual fund is a type of professionally managed
collective investment scheme that pools money from many investors to
purchase securities. While there is no legal definition of the term
mutual fund. It is most commonly applied only to those collective
investment vehicles that are regulated and sold to the general public.
(www.wikipedia.org) It provides opportunity for mobilizing community
savings for productive investment. The security market is a requisite for
the sound development of an economy because it not only provides
stable long-term capital for companies and an effective savings vehicle
for the public, but also functions as an efficient tool for resource
allocation.

Nepal, one of the least developed countries in the world has to make
different strategies and plans for collecting and mobilizing efficiently the
available capital in the country. For the efficient securities market
efficient allocation of capital is essential for the well-functioning of the
economies. The need for an efficient securities market is a must for the
efficient allocation of capital within economies. Mass participation in
countrys industrialization process is possible only through the efficient
mechanism of securities market as it promotes efficient collection of
small and scattered savings from the investors and provides returns to
them in the form dividend (Adhikari, p.41). The financial intermediaries
that link savings with the users of capital would be needed to make the
mass participation possible and the securities market work more
efficiently. These intermediaries are well acquainted of every aspect
related to the investment and of opportunities of employing funds
profitably. They can go farther afield geographically; they know the
personal reputation of would-be borrowers; they command expert advice
of the highest quality. In this manner they can secure a higher return on
the savings of individuals owing to superior knowledge and bargaining
power (Grant, A.T.K., p.183).

Mutual funds come right there. Mutual funds are simply a means of
combining or pooling the funds of a large group of investors (Corrado &
Jordan, p.88). The mutual fund having indirect assess to financial
markets for individuals can be considered a financial intermediary. They
represent a sensible and efficient vehicle for individual investors to
participate in the market (Fisher & Jordan, p.654). The fund allows the
investor to purchase a much diversified portfolio of securities for a small
investment. It is impossible to purchase a much diversified portfolio of
individual securities with a modest investment outside of a mutual fund.


1.2 Concept of Mutual Fund

A company that manages the funds collected from the individual
investors and by investing it in other security markets is an investment
company. In other words, an investment company is a business that
specializes in managing financial assets for individual investors. All
mutual funds are, in fact, investment companies, however, not all
investment companies are mutual funds (Corrado & Jordan, p.89).

There are two primary forms of investment companies: open-end and
closed-end companies.

The fund itself will sell new shares to anyone wishing to buy and will
redeem shares from anyone wishing to sell in the open-ended mutual
fund. The fund simply issues open ended fund shares and then invests
the money received while buying the shares. The fund sells some of its
assets and uses the cash to redeem the shares while selling the open-
ended shares. As a result, with an open-end fund, the number of shares
outstanding fluctuates through time.

With a closed-end fund, the number of shares is fixed and never changes
so in order to buy shares, one must buy them from another investor.
Similarly, to sell the shares, one must sell them to another investor.

Strictly speaking, the term mutual fund actually refers only to an
open-end investment company. Nonetheless, particularly in recent years,
the term investment company has all but disappeared from common
use and investment companies are now generically called mutual funds
(Ibid., p.90).


Mutual Fund History:
The mutual fund industry in Nepal started about 15 years ago with the
introduction of NIDC Capital markets which issued an open ended
mutual fund, NCM Mutual funds, for Rs. 10 per unit in 1991/92. With
the view of participation of small savers only in capital market cannot
handle the intricacies of the stock market, the NCM First Mutual Fund
2050 was issued with the objectives to involve institutional players in
the development of stock market and give stability to it. Its purpose was
largely to stabilize the market and increase confidence in the financial
markets. (KC & Pandey, July 2009).
The buyers could buy maximum of Rs.100 million of the fund with face
value of Rs.10 per unit and 100 units as minimum number purchased.
The funds so collected were invested in equity, debentures, bonds and
short-term tradable securities with 90 per cent of the amount collected to
be invested in bonds, debentures and shares at maximum and the
investment in the short-term securities were limited to 30 per cent at
maximum but not less that 10 per cent.
The investment criteria were:
1. The fund of this scheme would be invested in financially sound
companies in general listed or to be listed.
2. Fund should not be invested in risky business
3. The fund looked for good returns from capital gain, dividend and
interest
4. Investment would be done in existing companies or newly
privatized public entities
5. Specific investment areas of the funds would be banking and
financial institution, tourism, trading, construction areas, services
and in manufacturing
6. The funds involved in one company shall not be more than 10-%
of the total size of the fund

Current scenario:
Currently two mutual fund investment exists in the security market of
Nepal : Sidhartha mutual fund & Nabil growth fund
Siddhartha mutual fund: After the mutual fund regulation was enacted
by the SEBON in Nepal, in 2010, Siddhartha mutual fund came int
existence. It is a closed ended fund and according to the mutual fund act
it has structured itself with the Fund sponsor, Fund supervisor, Fund
Manager and depository. Currently, Siddhartha bank is the fund sponsor,
Siddhartha capital with 51% ownership of siddhartha bank and
Depository is the institution established for the purpose of safekeeping
of assets, keeping records of the unit holders of the scheme, transferring
ownership, distributing dividends of the scheme etc. As per mutual fund
regulation fund manager can act as depository so siddhartha capital
limited acts as the depository of Siddhartha mutual fund.
Siddhartha capital is a growth fund. The aim of growth funds is to
provide capital appreciation over the medium to long- term. Such
schemes normally invest a major part of their corpus in equities. Such
funds have comparatively high risks. These schemes provide different
options to the investors like dividend option, capital appreciation, etc.
and the investors may choose an option depending on their preferences.
The mutual funds also allow the investors to change the options at a later
date. Growth schemes are good for investors having a long-term outlook
seeking appreciation over a period of time.

Nabil balanced fund: The Nabil balanced fund with NFO price per unit
of rs 10 with total amount of 60,000,000 units was issued in the scheme
named Nabil balance fund-I. Investors must hold at least 100 units but
not more than 6,000,000 Units which has 5 years of maturity. The Nabil
mutual fund has Nabil bank as the fund sponsor and Nabil Investment
Banking Ltd. (Nabil Invest), a subsidiary of Nabil Bank has obtained
licenses of Fund Manager & Depository in a mutual fund from SEBON
and will be rendering the said services to the schemes of Nabil Mutual
Fund.
Nabil mutual fund is a balanced fund. The aim of balanced funds is to
provide both growth and regular income. These schemes invest in both
equities and fixed income securities in the proportion indicated in their
offer documents. These are appropriate for investors looking for
moderate growth. They generally invest 40-60% in equity and rest in
debt instruments. These funds are also affected because of fluctuations
in share prices in the stock markets and interest rates. However, NAVs
of such funds are likely to be less volatile compared to pure equity
funds.


References:
www.nabilinvest.com.np/doc/downloads/130315135523_NABIL%20BALANCED%20FUND%20I.pdf
http://www.siddharthacapital.com/index.php/mutual-fund-basics
http://nepalistock.blogspot.com/2007_08_01_archive.html

http://janroman.dhis.org/finance/Books%20Notes%20Thesises%20etc/LSE/Chap04.pdf