A synopsis on: “Performance evaluation of mutual funds in Nepal” «

A synopsis on: “Performance evaluation of mutual funds in Nepal”

  1. Background

Mutual funds are seen as institutions for providing small investors with avenues of investment in the capital market. Most of the investors do not have the resources, knowledge, skill, experience and time for directly accessing the capital market. Mutual fund is an investment intermediary which mobilizes the savings of small investor, invest these savings with expertise in a well-balanced and well-diversified portfolio of stocks, thereby, reducing risk and earning a higher rate of return on investment. The Mutual Fund industry in Nepal is still in its nascent stage. Very few research based articles are published but not yet any empirical studies had been conducted in the area of Mutual funds performance evaluation in Nepal.

  1. Objectives of Research

The study takes the basic purpose to examine the performances of five major mutual fund schemes of Nepal namely, Laxmi Value Fund 1(LVF1), Nabil Balance Fund 1(NBF1), NIBL Samriddhi Fund 1(NIBSF1), NMB Sulav Investment Fund-1(NMBSF1), and Siddharth Investment Growth Scheme 1(SIGS1); compare them with each other, with market’s return as well as with a randomly diversified portfolio. Specific Objectives are as follows.

  1. To analyze the financial performance of mutual fund in Nepal from selected mutual fund with the tools of return, standard deviation & beta.
  2. To evaluate the selected funds assessment on the basis of various performance ratios (Sharpe, Treynor, Jensen).
  3. To compare selected equity performance with the NEPSE Index, to give ranking of mutual funds by their performance.
  4. To find problems & solution regarding mutual fund development in Nepal.
  5. Research Hypothesis

H1: There is a significant relationship between Return of Net asset value and performance of the Mutual funds companies in Nepal.

H2: There is a significant relationship between Return of Market and performance of the Mutual funds institutions in Nepal.

H3: There is a significant relationship between performance index (Sharpe, Treynor & Jensen) and performances of the Mutual funds institutions in Nepal.

H4: There is a significant relationship between investor’s perception and performance of the

Mutual funds institutions in Nepal.

  1. Scope & Limitation of Study
  2. Researcher has selected 5 close ended mutual fund scheme out of 8 fund scheme in Nepal due to limited operating period & they are competitive to each other. This study is only concentrated on close ended funds of Nepal.
  3. Observation period is monthly based & analyzed data are from opening of funds to till now.
  4. Dividends are not considered under study due to the unavailability of regular basis dividends provided by mutual funds in Nepal.
  5. Because of unavailability of historical data and fund composition it was difficult to ascertain the performance of the fund properties and a simple evaluation was done against the market performance.
  6. Market is not segregated about mutual fund that’s why considered whole market index under study.

Variable Name



Achievement by various schemes of MF

NAV Return

Change in NAV over a given time period

Market Return

Change in NEPSE Index over a given time period

Sharpe Index

Measure for calculating risk-adjusted return

Treynor Index

Return to volatility- Per each unit of market risk

Jensen Index

Measure for evaluating ability of Investment manager

Perception of Investors

Specific perceived by investors toward mutual funds in terms of problem and prospect of market

  1. Variables used in the study
  2. Research Gap

From the foregoing comprehensive literature review related to mutual fund performance evaluation in terms of global prospective, it is evident that mutual funds industries playing vital role in development of capital market in different corner of the world. But no detailed study has been undertaken to assess the opinion of investors toward mutual funds scheme in Nepal. Also no empirical work has been done to find out performance evaluation of mutual fund schemes in Nepal. The present study differs from the earlier studies as it covers all aspects of mutual fund industries in Nepal from opening period to till now of close ended mutual funds. The study makes an attempt to trace the impact of return associated risk on mutual fund industries in Nepal. It also tries to find out views of Nepalese investors regarding past experience and future plan of investment on mutual fund of each scheme

  1. Nature & Source of Data
  2. Primary data was collected through questionnaire. One hundred twenty structured questionnaires were distributed & replied from 93 respondents among various investors, students, financial executive and brokers who have basic knowledge of mutual funds.
  3. Selected 5 mutual funds from Nepalese market. All funds are closed end categories & operated at least before one year.
  4. In order to accomplish the purpose of research, secondary data were analyzed to find out Treynor, Sharpe and Jensen ratio as well as to give rank for selected mutual fund schemes according to each ratio.
  5. Research Methodology
  6. Descriptive and Analytical method have been used for analysis data.
  7. The general dispersion and tendency of the data has been analyzed through the descriptive statistics using SPSS & Scientific Calculator.
  8. Collected NAV of funds of each month for the year establishment of selected scheme and define return.
  9. Defined standard deviation on the basis of Monthly return & Defined beta of funds and market, overall NEPSE index return is taken as market return.
  10. Treynor, Sharpe and Jensen model have been applied to make effective study.

Sharpe’s index = (Rp – Rf) ÷ σp , Treynor’s index = (Rp – Rf) ÷ ßp

& Jensen’s alpha, αp = rp – [rf + ßp (rm – rf)]                    

  1. Major Findings & Result
  2. Mutual funds can substantially contribute in the development of the capital market. According to the financial executives, NEPSE, capital market has grown sufficient to sustain investment companies including mutual fund whereas general investors are not satisfied with the fact.
  3. In average performance of all mutual funds in Nepal is mentioned as “In Par” by the majority of respondents under study
  4. Public awareness programs are the most effective steps to develop mutual fund in Nepal. On an average 42% believe that public awareness programs are more effective. In order to development of mutual fund in Nepal, amendment of government policies regarding mutual fund is crucial.
  5. SIGS1 and NBF1 mutual fund schemes are more preferred by the general investors.
  6. As per the analysis of secondary data newly opening mutual funds have been taken in top position as compared to the earlier established fund schemes in Nepal. From the entire selected 5 schemes under study, best is Laxmi Value Fund 1 based on two models (Sharpe & Treynor) which secured 1st rank and also it provides good return in short period.
  7. Theoretical & Practical Implication of the study
  8. Overall performance of mutual funds is not satisfactory and its improvements are possible through realization of findings of this study.
  9. The study has been used only limited variables & considered whole NEPSE index. On this background further study can be done by adding variables of study to make a more empirical and scientific study.
  10. This study shows that the mutual fund companies are concentrating in capital city only. So, it will be beneficial to them if they exhausted in its strength geographically and they must reach to the rural areas where many small savings investors are waiting to come to the market.



Mahesh Raj Joshi

Now working as Branch Manager, Nepal Bank Limited,Ghartigaun Branch