Performance evaluation of mutual funds in Nepal

Abstract

A mutual fund is an investment vehicle made up of money collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instrument and other assets. Mutual Fund is one of the most effective instruments for the small & medium investors for investment and offers opportunity to them to participate in capital market with low level of risk. It also provides the facility of diversification i.e. investors can invest across different types of schemes. Mutual funds are operated by professional money managers, who allocate the fund’s investments and attempt to produce capital gains and income for the fund’s investors.

The development of the mutual fund industry is the greatest investment success story of the twentieth century in United States and this industry also emerged as the most dynamic segment of the Indian financial system on that time. But the history of mutual fund in Nepal started only with the establishment of "NCM Mutual Fund 2050" in 1993. Currently there are thirteen mutual fund schemes listed and traded in Nepal Stock Exchange that provide investment opportunities for investors in mutual funds market whereas only five mutual funds are taken into the consideration for this study.

In this context, the purpose of this paper is to evaluate the performance of the selected mutual fund schemes in Nepal from May 2018 to November 2020. This study is based on secondary data. Different statistical and financial tools have been used for data analysis. Moreover various absolute and relative performance measures like Sharpe measure, Treynor measure, Jensen Alpha is being used to evaluate the performance. The study finds that overall all the schemes provide higher and better average return than market except GIMES-1 whereas NIBSF-1 performance is low with high risk among all the selected mutual funds. Laxmi Value Fund-1 is found to be good performer among the selected mutual funds by having highest value of Sharpe, Treynor and Jensen measure. This research report may be useful to investor to make their investment decisions and suggest funding managers to adopt such strategies that could provide maximum benefit to the investors. This report may also provide a mechanism for identifying strengths and weakness of fund managers which help them to take corrective actions. All of the 13 funds that have selected are all close-end mutual funds.