Author: insurance

First and foremost, Nepal unfortunately does not have index funds. But that does not mean SEBON (Security Exchange Board of Nepal) won’t introduce index funds in Nepal in the future. Or, if you’re not in Nepal but are interested in investing here, this is the perfect article for you which will give you all the information you need about index funds (in Nepal’s context).

Through this article, you will understand what an index fund is, what an index is, what are the benefits of investing in index funds, the drawbacks of investing in index funds, and whether index funds in Nepal should be initiated or not.

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What is an index fund?

An index fund is an investment fund that pools the money that you invest and reinvests that money into other companies. This enables you to get a diversified market portfolio and thus minimizes your risk. But you know how the saying goes, lower the risk, lower the return. However, do note that index funds won’t rise and fall like individual stocks. Instead, it keeps rising gradually over time. 

Should Index funds be introduced in Nepal?

Weighing both the pros and cons of index funds, it is safe to say that introducing Index Funds in Nepal would be a plus point. It is the question of whether the Security Board of Nepal would change the current regulatory framework to initiate Index Funds in Nepal. Nepal now has a growing economy as compared to the past 10 years according to Central Beaurea of Statistics Nepal, meaning both the companies and interested investors can earn and prosper in the long run using index funds. 

Index Fund is the easiest way to enter the capital market if you’re a beginner or do not have time to analyze the market and trade actively. Either way, it is a safe way for people to invest their money with relatively low risk.

What is an index?

It is a way of measuring the performance of the market by looking at a sample of stocks or a group of stocks. Now you may feel like you could create an index but, only the established financial companies design and maintain indexes.

To understand this better, you can learn about these three indexes:

• NYSE Composite Index: The NYSE Composite Index shows the combined value of all common stocks listed in the New York Stock Exchange. This includes stocks from various sectors and industries, providing us with an overview of the entire NYSE(New York Stock Exchange).
• S&P 500 index: S&P 500 or the Standard and Poor’s 500 measures the performance of all the 500 large companies listed in the United States. It is one of the most widely followed equity indices and is a major indicator of the U.S. stock market’s health.
• S&P Mid Cap Index: This is a part of the S&P Dow Jones Indices Family. It measures the performance of 400 medium-sized companies listed on the Stock Exchange in the United States. 

What are the advantages of index funds in Nepal?

• Easy to manage: If you are not actively trading stocks and don’t have the time, index funds are the best option. You do not have to worry about the stock market and the constant movement in the stock market.
• Tax Benefits: You pay tax when you make a transaction, but since there are fewer transactions in index funds, fewer capital gains are leading you to enjoy tax benefits.
• Low fees: You need not actively manage and trade in the stock market, this reduces costs compared to actively managing funds.
• Broad Market Exposure: When you invest in index funds, you get market exposure to different stocks from different sectors. This lowers the risk.

What are the disadvantages of index funds in Nepal?

• No control over the portfolio: You invest in index funds you do not get to pick and choose what stocks you want. Index funds are passively managed and you cannot select individual stocks of your choice. And even if your stock’s value is declining, you cannot sell them and the index funds will passively hold onto them.
• Long wait: To reap the full benefits of index funds, you need to play the waiting game. If you want a quick return in a short period, index funds are probably not meant for you.

You may also like:

• Unit Investment Trusts (UIT)
• Exchange-Traded Funds (EFT): Definition, Types Explained
• Difference between a limit order and a stop order

FAQs

Conclusion

The growing economy, stock literacy of the people, and the want of the people to enter the stock market seem like a green light for SEBON(Security Board of Nepal) to introduce Index funds in Nepal. Index Funds would increase investment in the capital market and also make it easier to track investments and capital gains.

What is a Stop order?

The stock market is a crazy place where prices fluctuate like a rollercoaster. The wonderful thing is that you have tools at your disposal to assist you in maintaining control. It is one of these instruments, and it’s like having your superhero cape for handling stock price fluctuations.

So, to put it simply, what is a stop order? Essentially, it’s a letter that you give to your broker instructing them to purchase or sell a stock at a specific price. We refer to this particular position as the “stop price.” Consider it a warning indicator, similar to a red flag, alerting your broker to a potential trade opportunity when the stock hits a price you have already determined. It’s how you keep yourself informed and safeguard your investment.

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What are the types of Stop orders?

Sell stops

Consider sell stops to be safety valves for your financial investments. The system automatically sells your shares if the price of a stock drops below a certain threshold that you establish (for example, $45 for a stock that you purchased at $50). This protects your gains if the market declines and helps you minimize your losses if things go south.

Buy Stops

Consider buy stops as buttons for automatic purchases. The method will automatically purchase shares for you whenever a stock hits a preset price (let’s say $25 for a stock now trading at $20). In this manner, you can profit from a possible increase in the stock’s value without investing too soon.

Trailing Stops

Consider trailing stops as traffic-sensitive smart lights. These stops fluctuate in value in tandem with asset prices, consistently remaining a certain percentage below the going rate. You have more room for gains if the price increases because the stop price also increases. 

The stop price moves with the price, shielding you from sharp declines.

How does Stop Order work?

Select Your Indicator

Select a pricing point; it’s like putting up a warning sign for the market. This point may be either above the current price (buy stop) or below it (sell stop).

Await the Signal

Visualize a dance floor in the market. Similar to waiting for a rollercoaster to reach the peak before beginning the ride, your order remains silent until the market reaches the price you have selected.

The signal is on! It’s Action Time

 Whoa! When the market hits the price you’ve set, your order goes into effect and becomes a market order.

Market Order Takes Over

The market is now taking the lead. Due to fluctuations in the market, the price at which your order is filled may fluctuate somewhat from the one you have selected.

Purchase or Dispose as Scheduled

Your order will either seize the security (buy stop) or release it (sell stop) according to the signal you have selected. Imagine it like automatically getting off the rollercoaster at the precise location you select.

When do you place a stop order?

• Locking in Wins

Don’t forget to lock in your wins if you’re having them! Put a sell-stop order below the going rate. Your shares automatically sell if the market declines past that amount, protecting your earnings.

• Reducing Losses

If your stock isn’t doing well, set a cap on how much you can lose. Put a sell stop below the purchase price. Your order takes effect and lessens your losses if the stock continues to decline.

• Seizing Chances

Do you believe a stock is going to rise? Place a purchase-stop order above the going rate. Your order is automatically placed if the stock rises beyond that threshold, allowing you to profit from the upward trend.

• Playing it Safe When Wagering Against 

Exercise caution when wagering on a stock’s decline. Above the price of your short entry, place a purchase stop. Your order limits the amount you could lose if the stock rises suddenly.

• Avoiding Market Jitters

Exercise caution when the market is erratic. When making new investments during volatile times, use stop orders. By doing this, you can stay out of the unexpected declines and increases in the market.

What are the examples of Stop orders?

Avoiding Big Losses

Sarah paid $50 for each of the 100 shares of ABC Company that she now owns. She puts in an order to sell them automatically if the price goes to $40 or less to make sure she doesn’t lose too much money. That way, if things don’t work out, she will have less money to lose.

Seizing Chances

David is monitoring XYZ stock, which is trading at $20. Though he is cautious about making an early purchase, he believes it may rise. Therefore, he places a buy order that will be automatically filled if the stock price rises to $25 or higher. In this manner, he can ride the wave and possibly profit if the stock continues to rise.

Playing it Safe When Betting Against a Stock

Maya is “shorting” the DEF stock, which is speculating that it will decline. She places an order to automatically purchase the stock if its price hits $45 or higher to safeguard herself if the stock unexpectedly rises. If things don’t work out as planned, this helps her reduce the amount of money she could lose.

You may also like:

• limit Order and How does it work
• Market Order: Definition, Types, Examples
• What is an order

FAQs

Conclusion

To successfully navigate the ever-changing financial markets, stop orders are an indispensable instrument. These tools enable investors to manage their portfolios proactively, whether it’s by using buy-stop orders to capture possible breakouts, stop-limit orders to make smart sell decisions, or stop market orders to react quickly to market fluctuations. People may improve their risk management, safeguard earnings, and take advantage of market chances by learning how to use stop orders wisely. This will ultimately help them adopt a more robust and controlled attitude to their investing journey.

Can a Nepali citizen invest in foreign shares is the most asked question nowadays. Buying and selling stocks is the topmost and trending topic that has been arising today in Nepal. Investing globally can offer more chances to grow your money. It allows you to benefit from worldwide economic improvements and provides a broader range of investment options. We will discuss the investment opportunities that are possible for Nepali citizens.

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Let’s first understand the stock market in Nepal. Nepal Stock Exchange (NEPSE) established in 1994, actively supports the national economy by facilitating the buying and selling of shares, channeling funds to businesses, and fostering investment. 

Operating under the regulations of the Securities Board of Nepal, NEPSE employs modern technologies for efficient online trading. It lists companies from various sectors, allowing investors to trade shares during specified hours. NEPSE’s indices offer insights into market performance, attracting both domestic and international investors and contributing to the overall development of Nepal’s financial landscape.

Can a Nepali citizen invest in foreign shares?

As you know, Nepal has strict capital controls. According to the act provided by the Nepal Law Commission, Nepali citizens cannot lawfully invest abroad unless they acquire special permission from the Nepal government or Nepal Rastra Bank. Act Restricting Investment Abroad, 2021(1964)

This act is so old that King Mahendra Bir Bikram Shah Dev adopted it with the approval of the national panchayat. Although King Mahendra died, as did Nepal’s kingdom, this statute remains in place today.

According to the law, those in violation would face a fine equal to the investment and/or imprisonment for up to six months. Nepalese citizens are unable to transfer funds outside of the nation except for medical, travel, and educational needs.

What is the objective of this law?

Looking at it objectively, there are positive sides to this Act. Without it, Rich individuals might invest in foreign assets, leaving our homeland barren to gain higher investment returns. As we know Nepal’s economy requires a lot of investment, and NEPSE, in its early days, needs more attention and care to grow, even if it’s somewhat enforced.

The goal of the government is to stop money from leaving the nation. Similar to Nepal, a lot of countries with lower reserves of foreign currency prevent their citizens from making large-scale foreign exchange investments abroad. As a result, residents of these economies—including Nepal—are prohibited from making outside investments.

Some believe this law is illogical, outdated, and badly worked out. They believe that investment in any nation that allows such acts should be open to Nepalese citizens as well as all other free people. Still, laws are laws, and we have to follow them, particularly if they are provided by our constitution.

Understanding Act Restricting Investment Abroad, 2021(1964)

Some individuals may experience confusion regarding the “Foreign Investment and Technology Transfer Act, 2019” and the “Act Restricting Investment Abroad 2021,” mistakenly believing that these acts permit Nepalese citizens to invest in foreign stock exchanges.

Here is the fact: 

The 2019 Foreign Investment and Technology Transfer Act (FITTA) intended to bring in foreign investment, technology, and money for the export expansion and substitution of import industries. Similar to the “Act Restricting Investment Abroad 2021,” the FITTA bans people of Nepal from investing abroad. To improve the national economy and make it profitable, strong, and employment-oriented for long-term economic growth, the focus is instead on attracting foreign investment and technology.

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FAQs:

Conclusion: 

Nepal implemented tight capital controls under the 1964 Act Restricting Investment Abroad. This regulation requires formal authorization for international investments, which has drawn controversy. However, it should be noted that the major goal of this regulation is to promote domestic economic growth. Nepal’s government is not now interested in promoting a free market environment for foreign investments. After reading the blog you might be clear about Can a Nepali citizen invest in foreign shares.

The share market allows investors to acquire and sell company stock through Initial Public Offerings (IPOs). Investors trade through brokerage companies, which use a computerized system to match orders. The clearing and settlement processes maintain transaction security. 

Market activity is monitored to avoid manipulation. Share ownership is broad, with the government monitoring safety issues. Overall, the stock market allows businesses to raise capital and investors to take part in economic growth. let’s first understand about the NEPSE. 

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What is NEPSE?

The Nepal Stock Exchange, or NEPSE, is Nepal’s only stock market and plays an important role in the country’s share market. It offers investment options to investors and advises individuals interested in Nepal’s economic activity. NEPSE was founded in 1993 and had 226 businesses listed by June 2023, with a total market value of Rs. 306,196 crore (US$24 billion) as of February 2023. NEPSE has 76 accredited brokerage firms across the country to help people buy and sell.

What is the share ownership in the Nepal Stock Exchange (NEPSE)?

NEPSE is primarily owned by the Government of Nepal, holding 58.66% of the ownership. Other major shareholders contribute to the remaining ownership, as indicated in the table below.

How does the share market work in Nepal?

Here are the key components of how the share market works in Nepal:

• Company Registration: Companies that wish to be listed on the stock exchange must register with the Securities Board of Nepal (SEBON) and meet specific criteria, including financial stability and observance of regulations.

• Initial Public Offering (IPO): A company, after meeting the regulatory requirements, can issue shares to the public through an Initial Public Offering (IPO). This is the first time the company’s shares are made available for public purchase.

• Investor Account Opening: Individuals who want to buy or sell shares in the stock market need to open a Demat (Dematerialized) account with a registered brokerage firm. This account holds your shares in electronic form, eliminating the need for physical share certificates.

• Broker Selection: Investors need to choose a stockbroker registered with NEPSE. The broker facilitates the buying and selling of shares on behalf of the investor.

• Placing Orders: Investors can place orders through their broker, specifying the quantity and price at which they want to buy or sell shares. There are three types of orders: market orders (buy/sell at the current market price), limit orders (buy/sell at a specific price), and stop orders, which are executed as market orders after the stock hits a specific price.

• Order Matching: NEPSE operates a computerized trading system. The buy and sell orders are matched based on price and time priority. The matching process results in executed trades.

• Clearing and Settlement: After a trade is executed, the clearing and settlement process takes place. NEPSE’s clearinghouse ensures the delivery of shares to the buyer and payment to the seller. This process helps in maintaining the integrity of trades.

• Market Indices: NEPSE maintains various market indices like the NEPSE Index and the Sensitive Index, reflecting the overall market performance. Investors often use these indices as benchmarks.

• Market Surveillance: SEBON and NEPSE closely monitor market activities to ensure fair and transparent trading. They have rules and regulations in place to prevent market manipulation and insider trading.

• Dividends and Corporate Actions: Companies may issue dividends to shareholders, and there can be corporate actions like stock splits or mergers. Investors are entitled to participate in these events based on their shareholding.

• Continuous Disclosure: Listed companies are required to provide regular financial reports and updates to SEBON, NEPSE, and the public. This ensures transparency and helps investors make informed decisions.

• Investor Education and Awareness: SEBON and NEPSE also focus on investor education and awareness programs to empower investors with knowledge about the stock market, investment risks, and financial literacy.

By following these steps, investors participate in the buying and selling of shares on the Nepal Stock Exchange, contributing to the overall functioning of the stock market in the country.

How Your Order Is Processed?

With so many investors distributed over the world, it is unrealistic for everyone to assemble in one area to make their trades. This is where stockbrokers and brokerage businesses come in. When you decide to buy a stock at a given price, your broker handles the transaction at the exchange. Behind the scenes, numerous parties work together to ensure that everything operates well. Meanwhile, the exchange verifies the information of both buyers and sellers to avoid any defaults. After validating everything, it permits the real transfer of ownership of the shares, also known as settlement.

Previously, settling deals took weeks, but today it takes only T+2 days. For example, if you trade today, your shares will be in your demat account the day after tomorrow, or two working days later. The exchange assures that the trade is respected upon settlement. Whether the seller possesses the stock or not, the buyer will get their shares. If settlements are not upheld, the integrity of the stock market suffers since trades may not be fulfilled.

You may also like:

• How can I buy and sell shares in Nepal
• Can a Nepali citizen invest in foreign shares
• How do I know the IPO allotment time on the date of the allotment

FAQs

Conclusion: 

NEPSE is Nepal’s main stock market. Companies register, conduct IPOs, and get listed. Investors open accounts, place orders, and trade through NEPSE’s system. The market is monitored for fairness, and disclosure is mandatory for listed companies. NEPSE is mostly owned by the government. This process allows investors to participate in Nepal’s stock market and contribute to its growth.

The IPO allotment date is the day on which the allotment status is made public on the IPO registrar’s website. IPO allotment result times can vary, so it’s advisable to check closer to the allotment date. 

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How do I know the IPO allotment time on the date of the allotment?

There are several ways to verify whether you have been allotted shares in an IPO:

1. Stock Exchange’s Official Website (e.g., NEPSE): Visit the official website of the stock exchange where the IPO is listed. Look for the IPO allotment section to check your status.
2. Registrar’s Website: The registrar handling the IPO usually provides an online platform to check allotment status. Visit their official website and enter the required details.
3. Financial News Sites or Company’s Website: Stay updated with financial news sites or check the official website of the company issuing the IPO for any announcements regarding allotment.
4. Broker’s Platform: Log in to your broker’s platform and check your IPO application status. If you have been allotted shares, the status will indicate ‘allotment received’; otherwise, it will show ‘allotment not received.’

How would I know if I have been allotted the shares?

The list of people who were allotted shares is made public by the issuer’s manager on the day of allotment. Online platforms are so easily accessible, this information can be obtained quickly after it is made public. IPO result check can be performed by yourself on the CDSC official site, mero share, and IPO Issue Manager’s Website.

However, If you receive an allotment, you can expect notifications through various channels:

• Registrar’s Email Notification: The registrar will inform you about the IPO allotment on the Refund day through an email. This email will provide detailed information about the allotment.
• Broker’s Communication: Your broker will notify you through SMS and Email if you have received an IPO allotment. Additionally, they will keep you informed about the shared credit in your account on the refund day.
• Depository Notification: On the refund day, your Depository will inform you about the credit of shares in your account resulting from the IPO allotment.

Stay attentive and monitor these channels to stay informed about the status of your IPO application.

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• How does the share market work in Nepal
• Can a Nepali citizen invest in foreign shares
• How many days will it take to credit allotted shares on the demat account in Nepal

FAQs:

Conclusion:

To check IPO allotment, visit the registrar’s site on the allotment date. Use stock exchange sites, registrar platforms, and financial news sites. If allotted, the list is published on platforms like CDSC and Mero Share. Notifications come via email from the registrar, SMS, email from your broker, and Depository notifications on the refund day. Stay vigilant, as allotment times vary. You can buy and sell shares at any time during the trading hour; however, it is advisable to sell your IPO shares when you receive a favorable price.