SEBON's fund draft puts steady inflows first and new products last

The Securities Board of Nepal (SEBON) has put forward a draft Collective Investment Scheme Policy, 2083. For the share market, it would change how fund money arrives more than where it goes. Open-ended schemes and regular-investment plans come first, which would make household saving a steadier source of demand for listed shares. The products that would widen that demand, such as exchange-traded funds (ETFs), are left to months 24 to 36.

Why it matters: if the plan is adopted, flows into mutual funds would depend less on one-off closed-end issues and more on monthly contributions. That is a slower kind of buying, but a more regular one.

Nepal's funds now come in two forms. Open-ended schemes issue and redeem units on demand. Closed-end schemes raise a fixed pool and list it. The draft keeps both and gives the open-ended form priority. It would add systematic investment plans (SIP), dividend reinvestment, transfers between schemes (STP) and scheduled withdrawals (SWP). Investors could buy and redeem units regularly and online, against a net asset value (NAV) published on a set schedule.

The full product list goes well beyond equity. It includes debt and money-market funds, funds of funds, ETFs, infrastructure funds, green and sustainable funds, funds for small and medium enterprises, and real estate investment trusts (REITs). The rollout is staged. The first 12 months cover basic reform, and debt, money-market and fund-of-funds schemes would expand between months 12 and 24. ETFs and specialized funds follow, then the remaining schemes and regulatory technology.

On costs, SEBON would cap the total expense ratio and link management fees to performance. A performance fee would need a benchmark, a hurdle rate and a high-water mark. Funds would have to publish their risks, fees, expense ratio, benchmark, past returns, portfolio and redemption terms.

The draft also defines the roles of sponsors, scheme managers, trustees, custodians, registrars and distributors. Fund assets would be kept apart from those of managers and sponsors to limit conflicts of interest. Holdings that are unlisted, suspended or have no market price would get an independent fair-value assessment. New limits would address concentration in one company, group, sector or instrument.

SEBON also wants online account opening, digital customer verification, electronic payment and digital reporting. Funds would track market, credit, liquidity, operational, concentration and cyber risk against set indicators.

The draft came on a firm day for the market, with the NEPSE index up 0.31% on Friday. We had no fund-level trading data to show how listed schemes were positioned before it appeared.

The test of this reading is the final text. If the open-ended priority, the expense-ratio cap and the 12-month first phase survive into the adopted policy, regular fund inflows would arrive sooner. If the phases are pushed back, that shift would come later.