SIP investments surge in Nepal, drawing over 700,000 investors with Rs 17.5 billion market

KATHMANDU: The Systematic Investment Plan (SIP) is gaining traction among Nepali investors seeking higher returns amid low bank interest rates. ‘I’ve been investing in SIPs lately, putting NPR 2,000-3,000 monthly for an 18-20 year plan, expecting good returns,’ said Deepesh Bikram Thapa during a casual chat. Similarly, Babita Tamang shared, ‘I’m investing in SIPs for my son’s future, planning to increase my stake as it’s ideal for small investors like us who can’t actively trade in the stock market.’

These sentiments reflect a growing trend, with over 700,000 investors participating in SIPs, pushing the market size beyond NPR 17.5 billion, according to recent data. The Securities Board of Nepal (SEBON) has authorized nine companies to operate SIPs, including NIBL Ace Capital’s NIBL Sahabhagita Fund, NIC Asia Capital’s NIC Asia Debt Fund, Siddhartha Capital’s Siddhartha Systematic Investment Scheme, NMB Capital’s NMB Saral Bachat Fund-E, Laxmi Sunrise Capital’s Shubha Laxmi Kosh, Nabil Investment Banking’s Nabil Flexi Cap Fund, Kumari Capital’s Kumari Sunaulo Lagani Yojana, Sanima Capital’s Sanima Flexi Fund, and Prabhu Capital’s Prabhu Systematic Investment Scheme.

NIBL Ace Capital pioneered SIPs in 2076 BS with a NPR 500 million NIBL Sahabhagita Fund, now grown to NPR 6 billion with 110,336 unit holders investing NPR 5.99 billion. NIC Asia Capital launched its NPR 500 million Dynamic Debt Fund in 2077 BS, now at NPR 2 billion with 107,341 unit holders contributing NPR 1.36 billion. Siddhartha Capital’s NPR 200 million scheme has expanded to NPR 2 billion, with 66,633 unit holders investing NPR 1.56 billion.

Other funds include NMB Saral Bachat Fund-E (138,879 unit holders, NPR 3.41 billion), Shubha Laxmi Kosh (65,098 unit holders, NPR 380 million), Nabil Flexi Cap Fund (53,595 unit holders, NPR 1.14 billion), Kumari Sunaulo Lagani Yojana (46,461 unit holders, NPR 541.3 million), Sanima Flexi Fund (52,321 unit holders, NPR 454.1 million), and Prabhu Systematic Investment Scheme (68,102 unit holders, NPR 400 million).

The rising SIP market is causing concern for banks and insurance companies, as investors shift from fixed deposits and insurance policies. A merchant banker told Development News, “People used to buy insurance for guaranteed doubling, but now they see better returns in SIPs, marketed aggressively by merchant banks.” Unlike insurance, where missing premiums incurs penalties, SIPs offer flexibility, allowing investors to skip payments without repercussions.

Nepal’s SIP market is in its early stages but growing steadily, unlike India, where SIPs yield higher returns (6% from insurance vs. higher from SIPs), attracting large investor bases. “Low bank interest rates of 3-4% drive people to SIPs for 10-12% returns,” the banker noted, warning that SIPs could challenge banks and insurers in the future.

SIPs are a method of investing in mutual funds, either close-ended (listed on NEPSE, fixed duration of 5-10 years) or open-ended (not listed, no fixed tenure). SEBON-approved funds issue units at NPR 10 during IPO-like offerings. Close-ended funds maintain a fixed size, while open-ended funds grow through SIP contributions, requiring SEBON approval for size increases.

Investors can contribute monthly (NPR 1,000), quarterly (NPR 3,000), or annually (NPR 6,000). Units are credited to demat accounts, with returns based on Net Asset Value (NAV). For example, a NPR 1,000 monthly SIP with a 20% return could yield NPR 2,400 annually, reinvestable for more units. However, if NAV drops (e.g., from NPR 11 to NPR 9), investors bear the loss.

IME Life Insurance CEO Pawan Kumar Khadka emphasized that insurance guarantees returns, unlike SIPs, which carry market risks. He views them as complementary, not competitive, advocating for balanced investments. Siddhartha Capital CEO Sandeep Karki echoed this, noting that fixed deposits ensure stability, insurance mitigates risks, and SIPs offer equity exposure, each serving distinct purposes.

As SIPs reshape Nepal’s investment landscape, their flexibility and potential for high returns attract small investors, but financial literacy and prudent strategies are crucial to manage risks and sustain growth.

What is SIP?

A Systematic Investment Plan (SIP) is a disciplined investment approach where individuals regularly invest fixed amounts—monthly, quarterly, or annually—into mutual funds, starting as low as NPR 1,000. Investors purchase fund units at a set price (initially NPR 10) or Net Asset Value (NAV), with returns tied to market performance, potentially yielding 10-20% but also carrying risks of loss if NAV declines.

SIPs come in two types: close-ended, with a fixed duration (5-10 years) and listed on stock exchanges, and open-ended, with no fixed tenure and managed by capital firms. Units are credited to demat accounts, offering flexibility as missed payments incur no penalties, unlike insurance. SIPs provide equity market exposure, complementing fixed deposits and insurance, but require financial literacy to navigate market risks effectively, making them ideal for small investors seeking long-term wealth creation.