Decision likely to drive mutual fund to invest in volatile stock market

KATHMANDU, Jan 1: The Securities Board of Nepal (Sebon) has fined four mutual fund managers for parking their money in bank deposits higher than the prescribed limit, violating investment-related rules.

The action of the regulator of securities market is likely to push mutual funds toward volatile stock market due to the lack of other investment scopes.

Issuing a statement on Monday, the Sebon said it had fined NMB Capital Ltd, Laxmi Capital Market Ltd and CBIL Capital Market Ltd Rs 35,000 each for investing funds that are supposed to manage in bank deposits, breaching the allowed limit.

Another fund manager, NIC Capital Ltd, has been fined Rs 25,000 for breaching investment limit on bank deposit.

According to the Sebon, Citizens Mutual Fund-1 managed by CIBL Capital Ltd, NMB Sulav Investment Fund-1 and NMB Hybrid Fund L-1 managed by NMB Capital, Laxmi Equity Fund and Laxmi Value Fund-1 by Laxmi Capital Ltd and NIC Asia Growth Fund by NIC Asia Capital Ltd have breached the rule on limitation of the fund.

Boasting that this is the first punitive action against mutual fund scheme managers, Sebon said in the statement that it expects the action will help to strengthen compliance among securities businesspersons and develop healthy market.

The Sebon's decision to fine three mutual fund managers comes nearly five months after seeking clarifications from them over the breach of limit on investment on bank deposits from their mutual fund schemes.

The action against mutual fund managers also comes in the wake of growing outrage of share investors who blame mutual funds of earning money from bank interests rather than buying shares in the bearish market.

Representatives of penalized mutual fund managers were not immediately available for comment.

However, Sebon's decision to penalize mutual fund managers could drive them toward pouring their investment in stock market which has turned bearish in recent months.

Though mutual funds are barred from depositing more than 10 percent of total assets of their schemes in banks, the Sebon has used it discretion to define bank deposits as fixed deposits to fine them for breaching investment-related provision in the regulation. But if the merchant bankers put the same fund in the call deposits, it is not counted as bank deposit.

In their clarifications to Sebon in August, mutual fund managers reportedly told the Sebon that their share of fixed deposit investment crossed 10 percent due to the fall in their value of assets.

However, Nepal Merchant Bankers' Association's President Dhruba Timilsina said that the regulatory body should revise its regulation that bars fund managers from making their judgment on investments.

“The regulation was introduced some eight years ago when there were not any mutual fund schemes. Based on experience, it is time to review those provisions in the regulation and move ahead,” he suggested.

Leaders of mutual fund industry say that they make investment decision based on the risks and returns.

“Our objective is to deliver efficiency of our funds that we manage. We make investment decision based on our analysis and judgment,” added Timilsina.

 
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