Understand how open-ended funds buy back your units daily at NAV while close-ended funds trade on NEPSE at market-driven discounts or premiums.
In Nepal's capital market, mutual funds operate under two distinct structural models regulated by SEBON. A close-ended fund raises capital once through an IPO, lists on NEPSE with a fixed maturity period (e.g., 7 or 10 years), and trades between buyers and sellers. An open-ended fund operates continuously without a maturity date: you buy units directly from the fund manager at today's published NAV, and when you want your money back, the fund manager repurchases your units.
Many retail investors in Nepal purchase close-ended mutual funds on NEPSE without realizing they cannot be redeemed on demand with the fund house - they must find a buyer on TMS. Conversely, investors wanting a monthly SIP often do not know that only open-ended schemes (like NIBL Sahabhagita Fund or Siddhartha Systematic Investment Scheme) support recurring automated debits.
If you want disciplined monthly investing from your bank account, choose an open-ended scheme. If you have lump-sum cash and want to buy assets at a discount to intrinsic value on NEPSE, analyze close-ended funds.
For close-ended funds, compare the NEPSE market price against the weekly/monthly NAV published by the AMC. If the NAV is NPR 12.50 but the stock trades at NPR 10.00, it trades at a 20% discount.
Open-ended units are purchased via the fund manager's online portal or distributor bank counters using connectIPS. Close-ended units are purchased through your broker TMS using ticker symbols like NBF2, SEF, or CMF2.
Open-ended units are redeemed anytime at prevailing NAV minus exit load directly into your bank account within 2-4 business days. Close-ended funds distribute total accumulated net assets to unitholders upon completing their 7-10 year term.
| Feature | Open-Ended Scheme | Close-Ended Scheme |
|---|---|---|
| Trading Platform | Direct with Fund Manager (AMC portal/counters) | NEPSE Secondary Market (via Broker TMS) |
| Maturity Period | Perpetual (No expiry date) | Fixed Term (Typically 7 to 10 years) |
| Pricing Mechanism | Always bought/sold at exact NAV | Market demand/supply (frequently at discount to NAV) |
| Liquidity Provider | Fund Manager guarantees redemption buyback | Other market participants on NEPSE |
| SIP Compatibility | Fully supported (Monthly auto-debit) | Not possible for automated recurring SIPs |
| Exit Costs | Exit load (0% to 1.5% depending on holding period) | Brokerage (0.27%-0.40%) + SEBON fee (0.015%) + DP fee |
Close-ended schemes historically dominate NEPSE, but open-ended funds have surged in popularity since SEBON approved schemes like NIBL Sahabhagita Fund, Siddhartha Systematic Investment Scheme, and NIC Asia Dynamic Debt Fund. An enduring anomaly in Nepal is that close-ended funds frequently trade at a 15%-25% discount to NAV because retail traders prioritize speculative hydro stocks over stable mutual fund units. Value investors often accumulate these discounted units to collect high cash dividend yields.
Nisha wanted to invest NPR 5,000 every month without watching stock charts every day. A colleague suggested buying close-ended units on TMS, but she found placing monthly broker buy orders stressful and irregular.
She switched to an open-ended mutual fund (NIBL Sahabhagita Fund) and registered an e-mandate SIP through connectIPS. Every month on the 5th, NPR 5,000 is automatically debited and converted into units at that day's NAV. Over 3 years, she accumulated 2,140 units worth NPR 32,500 in gains without placing a single manual trade.
Goal & Dilemma: Investing NPR 10,000 monthly for a 7-year horizon.
Per-unit value of underlying assets calculated and published by AMC.
The price at which close-ended units trade on the secondary stock exchange.
Fee charged by open-ended funds for selling within minimum holding windows (typically 0.5% - 1.5%).
The total mutual fund units being redeemed.
Close-ended scheme NAV = NPR 12.00, NEPSE price = NPR 9.60. Discount = ((12.00 - 9.60) / 12.00) * 100 = 20% discount. For open-ended: redeeming 1,000 units at NAV NPR 14 with 1% exit load = 1,000 * 14 * 0.99 = NPR 13,860 net payout.
Trying to set up a monthly SIP on NEPSE with close-ended units.
SIP requires open-ended schemes where new units are created dynamically at current NAV.
Panicking when close-ended fund price falls below NAV.
Trading at a discount is normal in NEPSE. As the fund nears its 7-10 year maturity, market price naturally converges toward NAV.
Ignoring exit load when withdrawing open-ended funds within 6 months.
Hold open-ended equity units for at least 12-24 months so the exit load drops to 0%.
Yes. You submit a redemption request through the fund manager's online portal. Payment is deposited directly into your linked bank account via connectIPS within 2 to 4 working days.
Because retail NEPSE investors favor high-beta speculative stocks over diversified mutual funds. This low secondary market demand keeps fund share prices below their underlying portfolio value.
Open-ended funds are significantly better for beginners because they enable automated monthly SIPs, eliminate the stress of stock market timing, and guarantee redemptions at fair intrinsic NAV.
The fund manager liquidates all underlying holdings into cash and pays out the final net asset value per unit directly to unit-holders' bank accounts, or converts it into an open-ended scheme if approved by unit-holders.
Cash dividends distributed by mutual funds to individual investors are subject to a final withholding tax (TDS) of 5% at source under the Income Tax Act.