Kathmandu. KATHMANDU: The Securities Board of Nepal (SEBON) has introduced a new provision for the seed capital investment of mutual funds.
The Securities Board of Nepal (SEBON) has made a provision in accordance with the provision contained in Rule 29 (2) of the Collective Investment Fund Regulations, 2067 (2067) that the Securities Board of Nepal (SEBON) should maintain a percentage of seed capital as prescribed from time to time on the basis of the performance of the first plan in respect of schemes other than the first plan.
(1) Now, the scheme manager may, subject to fulfillment of all the following conditions, invest at least 10 percent of the amount as seed capital:
- The scheme manager has at least 3 years of collective investment planning experience.
- The average monthly net asset price per unit of the last 3 years of the schemes operating with the operating permission from the Securities Board of India is more than the face value per unit of the scheme. In this way, the average of the last 3 years should be included in the calculation of the monthly net assets.
- The scheme admin’s rating is higher than the minimum rating.
- If any action has been taken or suspended by the Project Manager and Fund Supervisory Board, 6 months have elapsed since the action was taken or the suspension was lifted.
TAG_OPEN_li_57 The total capital of the projects managed by the project manager is more than Rs 1 billion.
(2) The scheme manager may invest at least 5 percent of the amount as seed capital subject to fulfillment of all the following conditions:
- The scheme manager has at least 5 years of experience operating a group investment plan.
- The average of the monthly net asset value per unit of the last 3 years of the schemes operating with the operating permission from the Securities Board of India is more than the face value per unit of the scheme. In this way, the average of the last 3 years should be included in the calculation of the monthly net assets.
- The plan admin has received an average rating or above.
- If the scheme manager and fund supervisor has been taken any action or suspension from the Securities Board, 6 months have passed since that action was taken or the suspension was lifted.
The total capital of the projects managed by the project manager is more than Rs 5 billion.TAG_OPEN_li_52
(3) The size of the scheme operated using the facility of seed capital pursuant to points 1 and 2 shall not exceed Rs. 10 billion.
(4) In case of failure to fulfill the conditions mentioned in points 1, 2 and 3, there shall be no obstruction to issue new plans and additional units by investing 15 percent of the seed capital.
(5) While making an application to the Securities Board for approval of a new plan or additional units, the Issue and Sales Manager and the Scheme Manager shall submit a Due Delegation Certificate to the Securities Board declaring that all the conditions set forth above have been complied with.
(6) In the case of an open-ended plan, the seed capital amount may be adjusted while increasing the size. However, such adjustment shall not be reduced to less than the amount of seed capital already invested.
In addition to this, the following instructions have been issued to all the scheme managers as per the decision of the Board of Directors to give the following instructions to the scheme manager.
- The project manager should formulate and implement a risk management policy.
- When operating more than one plan, the purpose and characteristics of the plan should be stated.
{{TAG_OPEN_li_47} The project manager should prepare a model of pressure testing of the plan and test the pressure of each plan during the half-yearly period and submit the report to the Securities Board of Securities Board within one month by discussing with the Board of Directors of the fund supervisor and the plan manager.
TAG_OPEN_span_44 What does the Securities Board say?
According to Rule 29 (2) of the Collective Investment Fund Regulations, 2067, the percentage rate of seed capital to be maintained by the scheme manager on the basis of the performance of the first plan in the case of other schemes other than the first plan. With this, the scheme manager will be able to keep 10 percent or 5 percent of the seed capital of the scheme size in the schemes to be operated if they meet certain criteria set by the Securities Board. Earlier, the project manager had been maintaining 15 percent seed capital in all the projects.
The Securities Board of Nepal (SEBON) has fixed the percentage rate of seed capital mainly on the basis of indicators such as experience of project operation, performance, quality and compliance status. The Securities Board believes that in the course of using this facility, the performance level of the scheme managers will increase, the rating will be improved and the 2 conditions of compliance will also be strengthened, which will benefit the units of the scheme.
The Securities Board believes that this will increase the size and participation of the mutual fund in the capital market and also strengthen the demand side in the secondary market.
Likewise, considering the possible risks that may arise due to the increase in the size of the fund, the Securities Board of Nepal (SEBON) has also directed the scheme manager to implement a risk management policy and submit a pressure test report to the Securities Board of Directors of the fund and the plan manager after holding discussions with the board of directors of the fund and its future plans. This will identify the possible risks that may arise in the course of the operation of the plan and the plan manager will formulate and implement the necessary strategy for their management.
As a result, it will help to make the scheme resilient even in adverse conditions, increase investors’ confidence in the scheme and also help maintain systemic stability.
