1

CHAPTER-1
INTRODUCTION

1. Background of the Study

Building wealth is in craze these days. Making money is very complex. Finance is in
simple management of money (especially public money) and money is again in
simply the mean of buying and selling of good services. And investing is a big part of
the money making equation. In modern age, money has carried advance meaning,
which we need to finance everything from a child’s education or a new home
purchase to our retirement. So money counts a lot that measures the success of people
life. Only the rich persons are taken as a successful man in the money world.

But how could we say who is? How much rich? In tradition view, we call rich man to
such people who have big amount of money, many houses, many cars and private
plane, have modern facilities etc. even though the master of such assets has worked
hard 24 hours and have no time to spend with family, no time to visit different places
to fresh and enjoy, chatting with friends or in shortly, s/he cannot spend life as s/he
likes.

So most of the people who do not have knowledge, expertise and time to manage a
portfolio, to them, luckily, there are Mutual Funds (Collective Investment Scheme),
which collect capital from the medium sources to make investment in a professional
and efficient way and distribute the return earned there on. People can do portfolio
Investment of their fund by purchasing units of such Collective Investment Schemes.

It can be explained as in another viewpoint. A substantial amount of investment,

among other things, is a prerequisite in the process of transforming of the economic
systems from agrarianism to industrialism. For this, it is necessary to increase
production by improvement of production process, to generate employment, to
increase income and do the social welfare. To overcome of the challenge of fulfilling
people’s aspirations for development can succeed through increased investment and it
is possible only through the mobilization of resource. The resource mobilizations are
 2

of two types; foreign and internal among which internal source of investment consist
of both Government as well as private savings. Foreign investment are often attached
certain restrictions and are not sustainable for sustainable development activities so as
far as possible be financed by internal sources and priorities be given to generate
surpluses inside the country. The Government has many things to do for its people
and it has some limitations, private sectors should be promoted and one of these
means is through the Mutual Funds or Collective Investment Schemes.

· These companies can help to mobilize the surplus of people in productive

activities.

· They Stimulate savings by the way of different mutual fund schemes.

· They encourage the establishment of industries and other companies by

investing in their shares and debentures.

· They can provide short term, long term and bridge loans.

· These companies can provide underwriting services.

· Performing the job of brokering for the sale and purchase of shares and
securities.

· They could also make the market for Government bonds.

Today more than $1.6 trillion is invested in the ‘universe’ of around 4,000 stocks,
bond, and money funds, according to Investment Company, and a national trade
group.

1.2Profile ofMutual Fund in Nepal

In Nepal, NCM First Mutual Fund-2050 was established by NIDP Capital Market as
the first mutual fund in 1993/94. It floated units of Rs.10 par value in the beginning.
The fund was of an open-end type. The fund performed well in the beginning, when
there was a boom in the stock market. However, its performance deteriorated in 1995
and its trading had to be suspended due to excessive selling pressure. The fund was
restructured into a closed-end fund to bring it back into operation in the name of
‘NCM Mutual Fund, 2059’ on August 9, 2002. The previous unit holders were offered
two options-either to refund or to participate in this new scheme. The fund has 10
 3

million units with Rs.10 face value. Out of the total units, it distributed 1.5 million
units to its management and trustee, 1.33 million to the unit’s holders of the previous
mutual fund scheme and the remaining 7.17 million units issued to the public.

Similarly, Citizen Unit Scheme (CUS) was operated by Citizen Investment Trust
(CIT) as a second collective investment scheme in 1994/95. It was incorporated under
the Citizen Investment Trust Act, 1990. It was established as an open-ended scheme
with the face value of Rs.100 per unit. CIT put Rs.5 million as seed capital in the
beginning.

1. Whether Collective Investment Scheme are consistent in their performance

or not?

2. What will be solutions or ways to improve portfolio performance of Mutual

Funds in Nepal?

1.3 Objectives of the Study

The main objective of the study is to analyses the prospects and problems of mutual
fund in Nepal. The specific objective of the study will be listed as follows:

· To analyses the prospects and problems of mutual funds in Nepal.

· To examine the financial performance of mutual funds during the period

studied.

1.4 Rationale

This present research deals with the study of problems and prospectus of mutual funds
in Nepal. The study of the portfolio performance of the Collective scheme: Citizen
Unit Scheme and NCM mutual Funds will be done. So this study will be significant in
the following ways:

· It tries to explore the problems of mutual fund and provides solutions or ways
to overcome the challenges to do better portfolio performance. It provides
encouragement and insight to handle the problem to Mutual Funds managers.

· It shows which investment company is better than another one in term of return
and its consistency. It will be useful public investors.
 4

· It is also benefited to the Security Board, Nepal. Because the study try to
provide some recommendations, to it as a Government body on behalf of
executives, financial teachers, investors, stock boards and students who have
knowledge about mutual Fund.

And lastly, it provides information to investors.

1.5 literature Review

This section attempts to review the most important research works that have been
conducted in the area of mutual funds. Here are some reviews of research works
conducted by the researchers.

Sharpe (1966) did research titled on “Mutual Fund performance”. The objective of
the studies was portfolio performance to measure the performance of mutual funds.
The performance is measured in terms of risk and returns of the fund. He was used
data on risk and return of 34 mutual funds from Dow Jones Industrial Average
(DJIA). The model was used Sharpe index which is

RiskPremium
Sharpe index (S¿¿ i)¿ =
TotalRisk

r i−R
=
σi

Where,

r i = average return from portfolio i

σ i= Standard deviation of returns from portfolio i

R = Risk less rate of interest

r i−R is called the risk premium for portfolio. The risk premium is called the
additional return over and above the risk less rate that is paid to induce investors to
assume risk. Sharpe index of performance generate one (ordinal) number that is
determined by both risk and return of the portfolio.

Out of 34 funds, 12 had risk- premium to risk ratios above 0.667 of the DJIA. The
average of the 34 mutual funds ratio is 0.633, which was below the DJIA 0.667. This
 5

means that the DJIA was a more efficient portfolio than average mutual funds in the
sample. The efficiency of average mutual funds investment was below than of the
DJIA. It follow stat many investors would be better off creating own portfolio of
randomly selected stocks instead of buying mutual funds.

Malkiel’s (1995) was studied on “The performance of mutual funds in the period
1945-64”. The research major objective was to find out the performance of mutual
fund with relation of equity. The study takes a new look at mutual funds returns
during the 1971 to 1991 period and utilizes a data set that includes the returns from all
mutual funds in existence in each year of the period. Most data sets included all
mutual funds that were in existence and thereby excluded funds that had terminated
their operations. The study utilized two market indexes as benchmark portfolio: one
was Standard & Poor’s 500 indexes and the other was Wilshire 5000. The study
utilized the CAPM model to have a measure of the fund performance shown as below:

R fd −Rf =α + β ( R mkt −R F ) + Eid

Where,
R fd=Funds returns
R f = Risk-free return

Rmkt =Market return

A is an intercept which measure of excess performance and β is beta which measures

the risk. Positive α implies positive risk adjusted return.

The calculation used quarterly returns for the funds and for the market benchmark.
The risk free rate taken was three-month Treasury bill rate reported by Ibbotson
Associates. The study also took up an important issue: Survivorship Bias. It states that
significant biases can be created in a study by including funds that no longer exits.
Therefore the study tried to reduce their business by including funds that were in
existence. The study found out that mutual funds tended to underperform the market,
not only after management expenses have been deducted, but also gross of all
reported expenses except load fees.
 6

The study found out, by utilizing simulation of variety of feasible investment

strategies based on the persistence phenomenon, that above average returns were
produced during the 1970’s. During the 1980’s, however, the study found no evidence
that investors could earn extraordinary returns following a strategy based on
persistence.

In conclusion, the study stated that, it did not find any reason to abandon a belief that
securities market is remarkably efficient. It suggested that most investors would be
considerable better off by purchasing a low expense index fund, than by trying to
select an active fund, than by trying to select an active fund manager who appears to
process a hot hard. Since active management generally fails to provide excess returns
and tends to generate greater tax burdens for investors the advantage of passive
management holds a fortiori. The finding, among others were: in an aggregate fund
have underperformed benchmark portfolios both after management expenses and even
gross expenses. The average alpha is negative when net returns are used and positive
when gross returns were used, but neither is significantly different from zero. While
considerable performance persistence existed during the 1970s, there was no
consistency in fund during the 1980s. Funds betas and returns were not related as the
CAPM suggest.

Mahato (2002) did research on “Risk and Return analysis of investing in mutual
Fund”. The main purpose of her study was to know the risk and return of mutual fund
in Nepal and its performance. She used NEPSE index as a basis and data of 44 month
(2055-2057) for evaluating the performance of mutual fund in Nepal. In her study, she
used the following statistical and financial measures to find out risk adjusted and
evaluate the performance of Mutual Fund:

· Sharpe Index

· Treynor’s Index

· Jensen Alpha

· Reward to Volatility Ratio (RVOR)

 7

In conclusion, she found out that the NCM Mutual Fund is not as efficient as market
portfolio. Thought monthly return of NCM Mutual Fund was higher than the market
but total risk of the market (S.D.) was less than NCM Mutual Fund. It means that
NCM mutual Fund is riskier than the market.

In her opinion, there exist several deficiencies in the practice of Mutual Fund in
Nepal. Since the return is comparatively low and the risk is higher, as a result,
investors are hesitating to put their money in Mutual fund. Thus, investors prefer
investing in stock to Mutual Fund. She even believes that one of the major reasons for
the failure of Mutual Fund might be due to the lack of proper knowledge.

1.6 Research Method

1.6.1 Research Design

Various descriptive, analytical and exploratory researches have been used to this field
work. With the analytical research design, comparative portfolio performance of
funds and their consistence of performance have been analyzed. Similarly, the
challenges of mutual fund for better performance and overcome the obstacles of
collective investment scheme are fulfilled by descriptive and exploratory research
design.

This is a small study going to be conducted by a single researcher and will be based
on the primary and secondary data in the peripheries of the mutual funds in Nepal.
Mainly, the research will be command on the covered area of the problems and
prospects of mutual funds in Nepal.

1.6.2 Population and sample

Mutual funds occupy very small part of Nepalese financial markets. However, mutual
fund has higher growth prospects in Nepal. All the mutual funds operating in Nepal
fall under the population of this study. Among them, NCM and CUS are taken as the
sample of this study.

1.6.3 Sources/Types of Data

For this study purpose it will be used two types sources of data collection:

a) Primary Data and

 8

b) Secondary Data

The primary data will take from questionnaire. The questionnaires will distribute
directly to the financial executives of the NIDC capital market, Citizen Investment
Trust, Nepal Stock Exchange and Security Board of Nepal. The questionnaires will
also distribute to finance teachers, students, investors, and stockbrokers of relevant
field who have some knowledge about mutual fund.

In this study primary as well as secondary data both are equally important. The major
sources of secondary data for this study are Security Board of Nepal, Company annual
report, and several magazine and libraries in the valley.

1.6.4 Tools and Techniques of Analysis

On the basis of the studies financial and statistical tool and techniques will be use in
this study which is as follows:

a) Financial Tools

· Market price of stock

Market price of stock is one of the measure measuring rods of the stock performance
for the investors. There are three types of the price of the stock i.e. high, low and
closing price. Hence, closing price is used as market price of the stock which has a
specific time span of one year and the study has focused in monthly.

· Return on stock

The return on stock means income received on investment plus capital appreciation on
stock price. Thus, the stock return is computed as under:

∑Rj
E ( R j )=
n

where,

∑ R j= sum of individual stock return

E(R j )= Expected return

n= Number of years that return is taken

 9

Or

P t−P t−1+ Ct
R=
P t−1

where,

R= Return of stock

Pt = Current price

Pt −1 = Previous price

C t = Cash dividend

b) Statistical Tools

· Standard Deviation

Standard deviation measures of the variability of a distribution of return around its

mean. It is the square of the variance and measures the risk on stock investment.

Symbolically,

σ=
√ ∑(R−R j )
n−1

Where,

σ = Standard Deviation of the returns during the period n.

· Coefficient of Variance

It is the ratio of S.D. of return to the mean distribution. It is a measure of relative

risk. A more comparison is obtained by applying relative risk measure such as
coefficient of variance. This is calculated by dividing the S.D. by mean of the given
data.

Symbolically,

σ
C.V. =
R
 10

σ = Standard Deviation

C . V .= Coefficient of Variance

R = Average rate of return

· Beta Coefficient

It is one of the measuring tools of the risks associated with the stocks. Other risk
measuring tools measure the total risk but beta is the relative measure of the risk. It
measures the systematic risk of the stock. It is functionally, related to the correlation
and covariance between the security and the market portfolio in the following way,

Cov jm
βj=
σ m²

where,

β j = Beta of stock j

2
σ m= Variance of market return

Cov jm= Covariance of two stocks

· If beta = 1.0, stock is average risk.

• If beta > 1.0, stock is riskier than average.

• If beta < 1.0, stock is less risky than average.

• Most stocks have betas in the range of 0.5 to 1.5.

· Chi-Square Statistics

Chi-square is an important test among the several test of significance developed by

statistician. Chi-square is a statistical measure used in the context of sampling
analysis for comparing a variance to the theoretical variance. As a non-parametric
test, it can be used to determine if categorical data shows dependency or the
classification are independent. In this research, chi-square is tested to test the validity
of the opinions expressed by various groups of respondents.

1.7 Limitation of the Study

This study has the following limitations:

 11

· Reliability of study depends upon the reliability of published data and fairness
of the opinion given by respondents.

· As the samples have been drawn at random for convenience there may exist
some sampling errors.

· The study will be confine to only on the problems and prospects of Mutual
Funds in Nepalese context.

· This Study covers only 5 fiscal years.

Since this study is for the purpose of partial fulfillment of the ‘Bachelor Degree of
Business Studies’, stipulated time and resources are also the limitation for the study.

for future research. The exhibits and bibliography are incorporated at the end of the
study.
 12

CHAPTER-II

RESULT AND ANALYSIS

2.1Data Presentation

2.1.1 Investment Portfolio

The study is about investment portfolio of Nepalese Collective Investment Scheme.

Therefore it is important to know than how much and in which sectors the funds have
diversified the collected amounts. The investment portfolio is very important for
mutual fund schemes because the good choice of investment will make the scheme
better performance. Investment portfolio refers to the choice of investment in different
types of securities e.g. shares, debentures, fixed income securities etc. Fixed income
securities are those securities, which provide the fixed rate of return during the period.
The investment in shares is more risky but it may give the high return. On the other
hand, fixed deposit and investment in government bond is secure but it gives a low
yield. There is not the standard rule to make the sound investment portfolio but we
can say that it should be proper or optimum which minimizes the return and
maximizes the risk. The price fluctuation of the shares is too high and it may cause a
serious problem to invest in shares.

The CUS has made investment portfolio as Government Bond, Fixed Account, Bond
and Debentures and Investment in Shares.
 13

Table 1

Investment Portfolio of NCM

Year % Investment in % Investment in % Investment in

share/debenture government bond Bank Deposit

2077/78 76.54 9.06 14.4

2078/79 77.7 8.10 7.16

2079/80 81.76 6.39 11.85

Source: Annual Report of NCM

The table 2.1 shows the percentage investment of the NCM in share/debenture in
2077/78 is 76.54%, it is increasing by 77.7% in 2078/79 and 81.76% in 2079/80
respectively. Investment in government bond is highest in 2077/78 that is 9.06% and
lowest in 2079/80 i.e. 6.39%. Investment in bank deposit is lowest in 2078/79 i.e.
7.16% and highest in 2077/78 i.e. 14.4%. Investment in share/debenture and bank
deposit is increasing and government bond is decreasing.
Table 2

Investment Portfolio of CUS

Fiscal % investment in % investment % investment in % investment

Years share/ debenture in government bank deposit in loan and
bond advance

2079/80 2.86 25.23 42.3 29.61

2076/77 2.83 32.17 34.99 30.01

 14

2077/78 3.72 45.36 23.28 27.63

2078/79 6.36 43.64 22.06 27.93

2079/80 5.9 33.12 20.32 40.63

Source: Annual Report of CUS

In this above table 2.2 shows the percentage investment of CUS mutual fund in
share/debenture is lowest in 2076/77 i.e. 2.83% and it is highest in 2078/79 i.e.
6.36%. Investment in bond is lowest in 2075/76 i.e.25.23% and highest in 2076/77.
Investment in bank deposit is highest in 2075/76 i.e. 42.3% and lowest in 2073/74 i.e.
20.32%. Investment in loan and advance is highest in 2079/80 i.e. 40.63% and lowest
in 2077/78 i.e. 27.63%.

Comparing the table 2.1 and 2.2 it can be found that the investment portfolio
percentage is opposite each other (NCM and CUS). The CUS has invested higher
percentage in fixed income sectors than shares whereas the NCM mutual fund has
invested higher percentage in shares. Therefore, the CUS fund is risk averter and the
NCM fund is risk seeker and the return of the NCM fund may be more fluctuate the
return of the CUS fund.

2.1.2 Risk and Return Analysis

In this section the periodic returns, their standard deviations, coefficient of variation
has been presented and analyzed.

Table 3
HPR Analysis of CUS and NCM

CUS NCM
 15

Year HPR (%) Year HPR (%)

2075/76 9.14 2075/76 46.72

2076/77 14.40 2076/77 8.86

2077/78 6.71 2077/78 -54

2078/79 6.92 2078/79 16.37

2079/80 5.0 2079/80 27.03

Source: Annual Report of NCM and CUS

HPR of NCM & CUS from 2075/76 to 2079/80 is given in the table. The table shows
the return is fluctuating small. The average return for the CUS fund is 8.43% and that
of NCM is approximately 9%.

ΣHPR
Average HPR =
N

Where, N= No of Observation

The unit of the NCM mutual fund is traded in the NEPSE. Therefore market forces
determine its price. The HPR for the closed end fund calculated as follows:

( NAV t+1❑−NAVt ) +CG t +1+¿t +1

HPR¿
NAV t ❑ ❑

There was no any dividend before 2064. In mutual funds 2064, there is a provision of
minimum return of 5% dividend each year. Form the above table, holding period
return move fluctuating than CUS mutual fund. The HPR is highest in 2064
i.e.46.72% and lowest in 2063 i.e. -54%. The average return is 9%, still greater than
the CUS mutual fund

Table 4
 16

Risk and Return Analysis of NCM and CUS

Fund Average return(K) Standard Coefficient of

deviation (SD) variation (CV)

NCM Fund 9 33.97 3.77

CUS fund 8.43 3.26 0.077

Source: Annual Report of NCM and CUS

The table shows the risk and analysis of NCM and CCUS. It shows average return,
standard deviation and coefficient of variation. NCM fund is grater then CUS fund.
Higher standard deviation is higher risk and return. CUS fund is less risk then NCM
fund

Figure 1

Risk and Return Analysis of NCM and CUS

40
34
30

20 NCM fund
CUS fund

10 9 8.43
3.26 3.8
0 0.077

K SD CV
 17

NCM fund has higher standard deviation or total risk then CUS fund. NCM fund has
higher coefficient of variation and higher risk in per unit basis and CUS has low
coefficient of variation and lower risk in per unit basis. Therefore, it is concluded that
the CUS fund is less risky then NCM mutual fund.

2.1.3 Systematic Risk and Unsystematic Risk Analysis of Found

The portion of the total risk of an individual security caused by market factors that
simultaneously affects the prices of all securities. It can’t be diversified away. It is
also called market risk or unavoidable risk or non-diversitable risk or beta risk. It
stems from factors, which systematically affect all firms, such as war, inflation,
recession, high interest rates, depressions, and long-term changes in consumption in
the economy.

Mathematically the systematic risk beta is measured as the covariance of the stock
return with the market returns expressed per unit of market variance as follows:

❑ COVjm
βj =
σm 2

βj=Beta

Cov = co-variance

σ = sander devotion

m = compound period

Interpretation:

If βj= 1.0, Stock is average risk.

If βj= 0.5, Stock is only half as volatile, or half risky, as the average risk.

If βj= 2.0, Sock is twice as risky as the average risk.

The beta coefficient is an index of systematic risk. Beta can be used for an ordinal
ranking of the systematic risk of assets. An asset with β > 1 is an aggressive asset
because it is more volatile than the market portfolio. If an asset has a beta of 2 and the
market (e.g. as represented by the S&P 500) goes up by 10 percent, this asset will
 18

increase in return by 20 percent on average. With defensive asset, beta < 1, and the
response of the asset will be less than that of the market.

Table 5

Systematic and Unsystematic Risk of NCM and CUS Fund

Fund Beta risk Total risk Systematic % of Unsystematic % of

risk systematic risk unsystematic
risk
risk

NCM 0.00867 1154.24 933.48 80.87% 220.76 19.13%

fund

CUS 0.8993 10.63 0.001 1% 10.629 99.99%

fund

Source: Annual Report of NCM and CUS

 19

The NCM fund has the beta of 0.00867 and CUS fund is 0.8993. Beta is the measure
of systematic risk, higher the beta, higher the systematic risk. Therefore the CUS fund
has high systematic risk than NCM fund.

In total risk analysis, NCM has 80.87% systematic risk and 19.13% unsystematic risk.
NCM has high percentage risk due to high market variance. CUS fund has only 1% is
the systematic risk and 99% percent is the unsystematic risk.

2.2 Field Survey

2.2.1 Present Condition of Mutual Fund in Nepalese Financial Market

This first question was related about the present situation of mutual fund companies in
Nepal. The viewpoints of the different respondents are presented in figure below.

Table 6

Present Condition of Mutual Fund in Nepalese Financial Market

State of Nature Good Moderate Bad

No of 30% 50% 20%

Participation

Total 6 10 4

Source: Field Survey

The above table shows that present condition of mutual fund in Nepalese Financial
market in moderate i.e.50% of the respondent believes that it is in moderate condition
 20

and 20% followed by bad. 30% respondents believe it is in good condition. Twenty
people are participation in questionnaire, out of twenty people only six people are
satisfied and they well. And ten people said moderate and remaining twenty
percentages told badly.

Figure 2

Present Condition of Mutual Fund in Nepalese Financial Market

No of Participation

Bad
20% Good
30%
Mod
erate
50%

The above figure shows that present condition of mutual fund in Nepalese Financial
market in moderate i.e.50% of the respondents believe that it is in moderate condition
and 20% followed by bad. Only 30% respondents believe it is in good condition.
About 20% of people seem it is in bad condition so it is a matter of anxiety. Moderate
condition means it may be either go up or go down and economy of the country is
worsen day by day so the attention must be given.

2.2.2 The Knowledge of Nepalese Inventors about Mutual Fund

This question tries to test about the knowledge of people about the mutual fund. If
they don’t know about it them how to they invest on it? The investors, brokers,
executives should have knowledge about it in order to develop it.

Table 7

The Knowledge of Nepalese Investors about Mutual Fund

 21

Investor’s Types Yes No Don’t Know

Respondents 4 13 3

Source: Field Survey

The above table shows that Nepalese inventor have not adequate knowledge of mutual
fund i.e.13 respondent think investor do not have adequate knowledge and 3person of
the respondent don’t know about it, and remaining only 4respondent said that
Nepalese inventor have adequate knowledge of mutual fund. So it is one of the
challenges of mutual fund companies.

Figure 3

The knowledge of Nepalese Inventors about Mutual Fund

Respondents

15% 18%
Yes No
Don’t Know

68%

Figure shows that Nepalese inventor have not adequate knowledge of mutual fund
i.e.68% respondent think inventor do not have adequate knowledge and 15% of the
respondent don’t know about it and remaining only 17% of the respondent said that
 22

Nepalese inventor have adequate knowledge of mutual fund. So it is one of the

challenges of mutual fund companies.

2.2.3 Contribution of Mutual Fund in the Development of Capital Market in

Nepal

This question tries to show the contribution of the mutual fund companies in Nepalese
capital market though it is in growing phase. But it just wants a respondent’s view as
mutual funds are contribution more in foreign countries like America and India

Table 8

Contribution of Mutual Fund

Investor’s Types Yes No Don’t Know

Respondents 12 6 2

Source: Field Survey

The above table shows that the contribution of the mutual fund companies in
Nepalese capital market though it is in growing phase. Only twelve says the mutual
fund can substantially contribution in the development of capital market in Nepal, and
out of twenty person two people haven’t known about it. And remaining six people
didn’t think contribute in Nepalese capital market.

Figure 4
 23

Contribution of Mutual Fund

Respondents

Don’t
Know
10%
No Yes
30% 60%

Figure show that mutual fund can substantially contribute that development of capital
market in Nepal. Only 30% of the respondents said that mutual fund couldn’t
substantially contribute in the development of capital market in Nepal. And remaining
10% don’t know about it. Most of the respondents think its growth can contribute the
development of capital market in Nepal so it is one of the prospective of the mutual
fund companies.

2.3 Major Finding of the Study

From the descriptive and analytical analysis of secondary and primary data, many
facts have been found out. In this section, the relevant major findings of the study
have been presented.

1. The CUS mutual fund, investment in share/debenture is fluctuating its

coefficient of variation is higher than other investment except loan and
advance. Investment in government bond more consistent than other
investment therefore its coefficient of variation is small i.e. 0.21. The
investment in bank deposit fluctuating more than the investment in bond and it
has coefficient of variation of 0.30. The investment in loan and advance has
more fluctuation and therefore there is consistency of the investment and it has
coefficient of variation 0.748.
 24

2. Average HPR of the CUS fund is 8.43% and NCM fund is 9% and coefficient
of variation of CUS fund is 0.077 and NCM fund is 3.77. CUS fund is less
risky than NCM fund. The average HPR of the both funds are almost same.
Average return of the NCM mutual fund is higher than CUS mutual fund and
NEPSE (market). Total risk of the NC mutual fund is higher than CUS and
NEPSE, but it has less risk per unit than NEPSE, but it has higher risk per unit
than the CUS fund. In overall analysis the CUS mutual fund is less risky than
market and NCM mutual fund.

Systematic risk of CUS fund is less than NCM fund. CUS fund has only 1%
systematic risk in total risk and 99% unsystematic risk. NCM has 80.87%
systematic risk and 19.13% unsystematic risk. Both funds are less risky than
market. Both funds are undervalued because the required rate of return is less
than average rate of return.

3. NAV is more consistent in CUS than NCM mutual fund. Operating expenses
ratio is more or less consistent in both funds.

4. The other problem found is there is no strong government policy to regulate

mutual fund in Nepal. On the other hand the passive investors are still in
majority in Nepal. Collective investment schemes are affected by political
environment so political instability is another great challenge.

5. There are many internal problems found such as inefficient management,

defective information system, incapable human resources, weak economy and
inefficient and wrong rule, policy and strategy exist as weakness in currently
mutual fund companies.
 25

CHAPTER- III

SUMMARY AND CONCLUSION

3.1 Summary

Mutual funds are the companies, which objectives are to collect money from the small
and medium investors to make investment in a professional and efficient way and
distribute the returns earned thereon. Presently there are two mutual funds exists in
Nepal; a) NCM mutual fund and b) Citizen Unit Scheme. There are some previous
studies those mainly focused just NCM Mutual Fund as mutual fund operated in
Nepal where as a less emphasis is given to the Citizen Unit Schemes which is also
operated as mutual fund under Citizen Investment Trust. Security Board Nepal ha
classified these two schemes under collective investment scheme so both of these
Mutual Fund Companies are taken in this research.
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Nepalese people are hesitating to invest in share market and the economic is very
unstable due the various environmental factors so the economic condition is very
ruined in present so the study is seems to be very relevant in order to find out the
some sorts of problems. On the other hand, many Nepalese people don’t have
adequate knowledge about share market. But it is necessary to bring even small
investors to the main stream of participating in the capital market and it is one of the
best options to invest through collective investment scheme i.e. through mutual funds.

But the challenges of MF can be managed through formulating separate mutual fund
act as well as expanding MFs in geographically and going to the areas where tons of
small savings are waiting to come to the market, efficient and effective management,
aware to investors about MF and providing trainings to them.

3.2 Conclusion

The major findings mentioned in chapter second led this study to conclude. From the
secondary data analysis, it can be concluded that although the portfolio performance
of CUS is better than NCM without adjusting NAV, if the CUS do not give attention
to improve its NAV, it would not be able to provide higher return to investors and
would become financial crisis in future because NAV is actual value of unit and it is
lower than par value of unit of CUS.

From the primary data analysis, it can be concluded that CIS is new concept is new
concept in Nepal so many people do not have knowledge about MF. On the other
hand, Nepalese MFs are doing struggle because of various challenges of external and
internal factors such as investors do not have knowledge about MF, no strong
government policy to regulate MF, unstable political environment, passive investors
are still in majority, inefficient management etc.
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BIBLIOGRAPHY

Books:

· Paudyal, Rajan B., Baral, Keshav J., Gautam, Rishi Raj., and Rana, Surya B.,
(2016)Financial Management,Asmita Publication: Kathmandu.

· Pant, Prem R., Essential of Business Research Method, First Edition.

· Adhikari,Devraj., Pandeya, Dhrubalal., Business Research Methods, Asmita

publication: Kathmandu.
· Annual reports of NCM and CUI.
· I.M. Pandey.Financial Management Tata MC Graw-Hill Bup. New Delhi.
· J. Fred Weston (1983), Thomas E. Copeland, Managerial Finance, Addison
Wesley 1983.
· Khan, M.Y. and Jain P.K. (1992)Financial Management Tata MC Graw-Hill:
India.
·
· Bank and Financial institution Act 2063, Ministry of Law and Justice.

· Van Horne, J.C. (2000), Financial Management and Policy, New Delhi:
Prentice Hall Inc.
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· Thapa, Kiran., Koirala Narayan. (B.S. 2064), Corporate Financial

Management. Khanal Books & Publishers & Distributors: Kathmandu

· Weston J Fred and Copeland, Thomas E. (1992), Managerial Finance,

Chicago: The Dryden Press

Internet

· www.google.com
· www.yahoo.com

APPENDICES

Investment Portfolio of NCM

Year % Investment in % Investment in % Investment in

share/debenture government bond Bank Deposit

2077/78 76.54 9.06 14.4

2078/79 77.7 8.10 7.16

2079/80 81.76 6.39 11.85

Source: Annual Report of NCM

Investment Portfolio of CUS

Fiscal % investment in % investment % investment in % investment

Years share/ debenture in government bank deposit in loan and
bond advance

2074/2075 2.86 25.23 42.3 29.61

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2075/76 2.83 32.17 34.99 30.01

2076/77 3.72 45.36 23.28 27.63

2077/78 6.36 43.64 22.06 27.93

2078/79 5.9 33.12 20.32 40.63

Source: Annual Report of CUS

HPR Analysis of CUS and NCM

CUS NCM

Year HPR (%) Year HPR (%)

2075/76 9.14 2069/70 46.72

2076/77 14.40 2070/71 8.86

2077/78 6.71 2071/72 -54

2078/79 6.92 2072/73 16.37

2079/80 5.0 2079/80 27.03

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Source: Annual Report of NCM and CUS

Risk and Return Analysis of NCM and CUS

Fund Average return(K) Standard Coefficient of

deviation (SD) variation (CV)

NCM Fund 9 33.97 3.77

CUS fund 8.43 3.26 0.077

Source: Annual Report of NCM and CUS

Systematic and Unsystematic Risk of NCM and CUS Fund

Fund Beta risk Total risk Systematic % of Unsystematic % of

risk systematic risk unsystematic
risk
risk

NCM 0.00867 1154.24 933.48 80.87% 220.76 19.13%

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fund

CUS 0.8993 10.63 0.001 1% 10.629 99.99%

fund

Source: Annual Report of NCM and CUS

Present Condition of Mutual Fund in Nepalese Financial Market

State of Nature Good Moderate Bad

No of 30% 50% 20%

Participation

Total 6 10 4

Source: Field Survey

The Knowledge of Nepalese Investors about Mutual Fund

Investor’s Types Yes No Don’t Know

Respondents 4 13 3

Source: Field Survey

Contribution of Mutual Fund

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Investor’s Types Yes No Don’t Know

Respondents 12 6 2

Source: Field Survey

QUESTIONNAIRES

A. What do you mean by Mutual Fund ?

B. Objectives of Mutual Funds.

C. Current Position of Mutual Fund in Nepal.

D. How many Mutual Funds are established Nepal ?

E. What are the services of Mutual Funds for Investors?

F. Why do choose Mutual Fund for Invest ?

G. It is Better option or not ? For investors.

H. What makes it’s different ?

I. Is it Reduces risk or not ?

J. Is it Increases return or no?