SEBON Relaxes Seed Capital Requirement for Mutual Funds, Incentives for Experienced Fund Managers

Kathmandu – Nepal Securities Board (SEBON) has relaxed the seed capital requirement for operating mutual funds in Nepal. As per the board’s latest decision, qualified and experienced scheme managers can now launch new mutual fund schemes and issue additional units by investing 10 percent or even 5 percent seed capital instead of the previously mandatory 15 percent.

Earlier, all mutual fund schemes were required to have a compulsory 15 percent seed capital investment from the scheme sponsor and manager. SEBON stated that the revised provision aims to provide incentives to experienced fund managers with strong past performance. The new regulation has come into effect from Magh 1.

According to SEBON, to be eligible for the 10 percent seed capital facility, a scheme manager must have at least three years of experience in operating collective investment schemes. In addition, the total size of funds under management must exceed NPR 1 billion, the average monthly Net Asset Value (NAV) per unit over the last three years must be above the par value, and the scheme manager must hold a rating above the minimum requirement. The manager must also not have faced any regulatory action or suspension in the past six months.

Similarly, scheme managers seeking to qualify for the 5 percent seed capital facility must have a minimum of five years of experience in managing collective investment schemes and manage funds exceeding NPR 5 billion. They must also maintain an average NAV above par value over the last three years, possess an average or higher rating, and must not have faced any regulatory action in the previous six months.

However, SEBON has clarified that the maximum size of any scheme operated under the 5 percent or 10 percent seed capital facility cannot exceed NPR 10 billion. Nevertheless, scheme managers who do not meet the relaxed criteria can still launch new schemes or issue additional units without restriction by maintaining the standard 15 percent seed capital requirement.

Alongside this relaxation, SEBON has made risk management measures mandatory. Scheme managers are now required to formulate and implement a comprehensive risk management policy. Each mutual fund scheme must undergo a semi-annual stress test, with the report discussed by the fund supervisor and the company’s board of directors, and submitted to SEBON within one month.

SEBON has also mandated that fund managers operating more than one scheme must clearly define and disclose the objectives and distinctive features of each scheme.

According to the board, the new policy is expected to further systematize Nepal’s mutual fund industry, encourage experienced fund managers, and make it easier to introduce new schemes. SEBON believes the reform will enhance mutual fund participation in the capital market, strengthen demand in the secondary market, and ultimately contribute to better protection of investors’ interests.