In the year 2067, Nepal witnessed a groundbreaking development in the realm of collective investment funds.
During that period, any company venturing into Initial Public Offerings (IPOs) was obliged to allocate a 5% share reservation for collective investment funds. However, there are now active initiatives to phase out this requirement.
Vinay Dev Acharya, the astute Executive Director of the Nepal Securities Board, pointed out, “The proliferation of collective investment fund plans has been noteworthy. Consequently, there will be no special allotment for collective investment fund shares exempted in the IPO.”
Presently, a diverse array of 18 collective investment funds is overseeing the operation of 37 close-ended and 7 open-ended plans. The operational framework empowers the managing fund to secure an IPO reservation. In practical terms, this means that out of the 5% of shares exempted in any IPO, 18 funds can seek allocation. Notably, Khutelbukhari Small Hydropower Company recently issued 121,000 shares, resulting in 6,093 shares being earmarked for collective investment funds. When the 18 funds applied, they were granted an allocation of a mere 338 shares each.
A detailed analysis suggests that the shares acquired by these funds will not exert a significant impact on market stability.
Furthermore, collective investment funds have faced accusations of market manipulation rather than stabilization, as they engage in the strategic sale of IPO-obtained shares within a defined time period. Thus, the board’s decision to discontinue IPO reservations for collective investment funds is both prudent and justifiable.
The introduction of new financial instruments has been accompanied by a proactive policy stance from the Securities Board, further cementing their commitment to fostering a conducive investment climate.
While there was an initial expectation of substantial public participation in these collective investment funds, empirical evidence indicates otherwise. Institutional investors dominate the landscape, accounting for a robust 70% of investments, with individual investors contributing a commendable 30%.
This diversification of investment channels offers an appealing alternative to traditional stock market investments, which often carry heightened inherent risks. Collective investment funds pool resources from the public, strategically investing in the stock market and mitigating exposure to market volatility.
This shift promises to democratize access to the stock market, providing individuals with an avenue to invest with confidence. Nonetheless, the considerable presence of institutions in this arena has led to some hesitancy in offering reservations, even from the board itself.
In a forward-looking move, a committee was established some time ago, under the astute leadership of the board’s non-executive director, Dipesh Tamrakar. This committee engaged in extensive discussions with stakeholders, offering valuable insights to inform a forthcoming decision. Anticipation is high for the committee’s deliberations, expected in the coming days.