KATHMANDU, July 27: Securities Board of Nepal (Sebon) has initiated a process to take action against mutual fund managers for parking their cash in bank and financial institutions (BFIs) in amounts higher than the limit.
Sebon -- the capital market regulator -- has sought clarifications from four mutual fund managers for violating a rule that bars mutual funds from depositing more than 10 percent of total assets of their schemes in banks.
Those coming under the scanner are CIBL Capital Ltd, NMB Capital Ltd, Laxmi Capital Market Ltd and NIC Asia Capital Ltd. These merchant bankers who have been managing mutual fund schemes were found to be parking their money in various banks as deposits by breaching a provision of the Mutual Fund Regulations 2010 that limits the amount of investment that a mutual fund scheme can keep in banks as deposits.
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 the limitation of the fund.
The Sebon move comes at a time when the stock market is a downward trend. Some investors have blamed mutual funds of exiting the stock market instead of buying shares when the stocks are bearish.
According to the Mutual Fund Regulations, the investment of any mutual fund scheme in bank deposits should not be more than ten percent of the total asset of the scheme. Other limitations for investment include 10 percent ceiling on general shares of any single corporate body, 20 percent on rights share or debentures issued by any single corporate body, 10 percent on market instruments and 20 percent on schemes under other mutual fund.
“Some of the mutual fund schemes were found investing up to 80 percent of their assets in fixed deposits in violation of existing regulations. It looks like their intention is not good,” said Niraj Giri, the Sebon’s executive director. “Mutual funds are supposed to work like a portfolio manager of their unit holders and do trading of securities regularly.”
“If mutual fund schemes are just about parking their fund in fixed deposits to get returns, why should unit holders pay them management fee. Public can themselves deposit their money in banks and get returns without any cost.” added Giri.
Shreejesh Ghimire, CEO of NMB Capital, declined to comment over the issue while other mutual fund managers could not be contacted immediately.
However, a CEO of a merchant bank that is not under the Sebon scanner told Republica that the Sebon crackdown on mutual funds leads to ‘regulatory repression’.
“There are limited instruments available for investment in the market. Taking action for investing in deposits, the regulator is trying to push us toward a volatile stock market,” said the CEO, speaking on condition of anonymity. “The regulator should see the intention of why they are doing it. Is it their vested interest or they are trying to utilize the funds in the best way possible? In the already volatile stock market, no mutual funds trade heavily in market globally. They have to be conservative by default.”