Kathmandu. KATHMANDU: The Securities Board of Nepal (SEBON) has reduced the seed capital rate of mutual funds. According to Rule 29 (2) of the Collective Investment Fund Regulations, 2067, the scheme manager has determined the percentage rate of seed capital to be maintained by the scheme manager in the case of the scheme other than the first plan.

Based on the performance of the first plan, the project managers will now be able to keep only 10 percent or 5 percent of the seed capital of the scheme if they meet certain criteria set by the board.

Earlier, the project managers were required to have 15 percent seed capital in all the projects to be operated by them. According to the new system, the percentage rate of seed capital has been determined on the basis of indicators such as experience of project operation, work performance, quality and compliance status.

According to the Board, with the use of this facility, the performance level of the scheme managers will improve, the rating will increase and the compliance situation will be further strengthened. The board believes that the unit owners of the scheme will be directly benefited from this. Likewise, with the increase in the size and market participation of the mutual funds, the demand for secondary market in the capital market will also be strengthened.

However, considering the potential risks that may arise due to the increase in the size of the fund, the board has directed the plan managers to mandatorily implement a risk management policy. Likewise, a stress test of each plan should be conducted and its report should be discussed in the board of directors of the fund supervisor and the plan manager and submitted to the board along with the opinion and future plan.

According to the Board, this step will help in identifying the risks that may arise during the operation of the project in time and will facilitate the necessary strategy to be formulated and implemented. This is expected to help make the scheme more resilient even in adverse conditions, boost investor confidence and help maintain stability of the overall financial system.