Interview with Mr. Sachindra Dhungana on the Launch of NIBL Stable Fund; A 12-Year Maturity Mutual Fund for Steady Returns

NIMB Ace Capital Limited is set to revolutionize investment opportunities with the launch of its new mutual fund– the NIBL Stable Fund. Scheduled for issuance from today i.e. on Magh 2 to Magh 5, this close-ended mutual fund aims to generate moderate steady returns by strategically investing in various financial instruments as per prevailing rules and regulations. With an IPO size of NPR 1 Billion, expandable up to NPR 1.25 Billion if oversubscribed, the NIBL Stable Fund presents a unique investment opportunity, distinguishing itself with a 12-year maturity period, making it the longest in Nepal's current landscape of close-ended mutual funds. The fund's diversified asset allocation strategy, ranging from equity and fixed deposits to fixed-income instruments, alternative investments, and cash equivalents, positions it as a versatile and balanced investment avenue for both seasoned and novice investors.

Public Issue of "NIBL Stable Fund" Mutual Fund Scheme Opening From Today

Mr. Sachindra Dhungana

General Manager at NIMB Ace Capital Limited 

About Interview

1. Sir you, ( NIMBACE Capital Ltd) have opened the public issue of “NIBL Stable Fund”.In this context could you please highlight the features of this scheme and also the difference between a stock and mutual fund scheme?

NIMB Ace Capital Limited is issuing NIBL Stable Fund from Magh 2 till Magh 5. NIBL Stable Fund is a close-ended mutual fund with an objective to generate moderate steady returns by investing in different financial instruments as allowed by prevailing rules/regulations on mutual funds. The areas of investment of this mutual fund scheme will be as per regulation.

NIBL Stable Fund is issuing its IPO worth NPR 1 Billion and may reach a maximum of up to NPR 1.25 Billion (25% more) if oversubscribed as allowed by prevailing regulation on mutual funds. The units will be allotted as per Securities Issues and Allotment Directive 2074. Also, it will have a maturity of 12 years, which will be the longest maturity period of any close-ended mutual fund currently prevailing in Nepal.

The asset allocation of this mutual fund will be a minimum of 20% and a maximum of 40% in equity, a minimum of 10% and a maximum of 15% in fixed deposit, a minimum of 20% in fixed income instruments, and a maximum of 50% in fixed income instruments such as bonds and debentures, TBs etc, minimum of 5% and maximum of 10% in alternative investment instruments and Cash and Cash Equivalents between 2% to 5%.

To clarify, a stock is an equity investment, meaning that when we purchase a stock or share, we are purchasing a portion of the company. In contrast, a mutual fund raises capital from a group of investors, typically through a new fund offering (NFO), and uses that capital to invest in a variety of financial instruments. The primary distinction is that, with stocks, we also become owners of the firm, but with mutual funds, we only become owners of the units in the fund—not the businesses in which the fund invests.

2. How can an individual invest in mutual funds? What are the different types of mutual funds available?

Mutual funds can be broadly divided into two types i.e. Open Ended Mutual Funds and Close-Ended Mutual Funds. With the launch of the NCM mutual fund in 1993 A.D. (2050 B.S.), the mutual fund concept was first introduced in Nepal and became well-known after the Mutual Fund Regulation, of 2067. Till date, there are 35 closed-ended mutual funds trading in NEPSE, 7 open-ended mutual funds and 10 of the mutual funds have already expired.

 There are two types of mutual funds currently available in Nepal: close-ended and open-ended mutual funds. An open-ended mutual fund is a type of mutual fund that can issue an unlimited number of units and are priced daily based on their net asset value (NAV). These funds are always open to investment, meaning they issue new shares as long as there is demand for them and redeem shares when investors want to sell. For instance, to invest in the NIBL Sahabhagita Fund, one would need to visit our NIMB Ace Capital Limited office to fill out the form or could directly do so by visiting our website.

 On the other hand, a closed-ended mutual fund is a type of mutual fund that has a fixed number of units and is not redeemable with the fund. These funds are traded on an exchange, and their price is determined by supply and demand. This often leads to the shares trading at a premium or discount to their net asset value (NAV). Unlike open-end funds, which can issue an unlimited number of units, closed-end funds issue a fixed number of shares during an initial public offering (IPO) and do not create or redeem units based on investor demand. Typically, closed-end funds have a maturity period, averaging around 10 years. To invest in a closed-ended mutual fund, one would need to subscribe to the IPO. Alternatively, investors can buy closed-ended mutual funds in the secondary market based on their Last Traded Price (LTP).

3. What are the key indicators or factors that affect the stock market?

There are a variety of factors that affect the stock market, ranging from macroeconomic indicators to policies, interest rates, investor sentiment, geopolitical and political situations within the country, and any news related to the industry or specific companies. and of course, the performance of the company itself is a crucial aspect.

Recently, we observed a situation where NEPSE halted trading after the publication of the first-quarter review by NRB. This incident highlights the numerous factors influencing our capital market. Therefore, investors must stay informed about the country's economic conditions and the financial situations of both the industry and the companies in which they are invested. 

4. Can you explain the concept of diversification in mutual funds and its benefits?

Whether a mutual fund is closed-ended or open-ended, it invests in different financial instruments to diversify its portfolio and mitigate risks. This is done to reduce market volatility. A mutual fund typically diversifies its portfolio across equity, debt, and cash. For instance, the NIBL Growth Fund has an asset allocation of 66.25% in equity, 20.22% in fixed income, and 13.53% in cash as of Mangshir End. Similarly, our new mutual fund, NIBL Stable Fund, will have more exposure to debt instruments such as bonds, debentures, and treasury bills. 

5. How can an investor analyze and evaluate the performance of a mutual fund?

To analyze the return of a mutual fund, whether it is a closed-ended or an open-ended mutual fund, investors can evaluate its performance by analyzing the mutual fund’s portfolio, assessing its holdings, and reviewing its asset allocation. Additionally, they can evaluate the fund’s yield and compare it with its peers. Conducting a background check on the fund's management team and its strategy execution is also important. High-quality management teams tend to outperform, and understanding the fund's investment strategy is crucial for assessing its performance.

Moreover, there is the concept of Net Asset Value (NAV). The NAV is calculated by subtracting the fund's liabilities from its assets and dividing the result by the number of units. Investors use the NAV to assess the fund's performance and to determine the price at which they can buy or sell units.