Institutional Malpractice and the Misuse of Public Funds in Nepal's Stock Market

A deeply concerning and alarming trend is taking root in Nepal's share market, directly jeopardizing the financial future of millions of ordinary investors. The very institutions entrusted with safeguarding and growing public wealth — mutual funds, insurance companies, and portfolio management services (PMS) — are increasingly implicated in practices that amount to a profound betrayal of trust.

Ordinary citizens, having toiled diligently for their hard-earned money, place their savings with these entities, hoping for secure and consistent returns. However, what is unfolding in the secondary market is a stark contrast to this expectation. These so-called "experts" and institutional investors are allegedly engaging in the gross misuse of billions of rupees belonging to the public. Instead of prudent investments, they are reportedly acquiring shares of financially distressed, non-dividend-paying, and near-bankrupt companies at inflated prices. This isn't merely a case of poor investment decisions; it points towards a systemic issue involving institutional collusion, corruption, and potentially, financial crime. The long-term implications for investor confidence and market integrity are severe, eroding the foundational trust necessary for a healthy capital market.

One of the most contentious aspects highlighted is the "expertise" seemingly propped up by the IPO quota. Nepali law grants mutual funds a special privilege: a 5% reserved quota in every Initial Public Offering (IPO). Given that IPO shares in Nepal frequently double or even triple in value upon listing, this provides a virtually guaranteed, risk-free profit avenue for these funds. Yet, despite this significant and assured advantage, the dividend history and overall financial health of many of these funds remain dismal. This raises a critical question: what would be the fate of these mutual funds without this lucrative IPO quota? It is plausible that many, if not most, would have ceased operations long ago, unable to sustain themselves by consistently investing public money in "junk" shares in the secondary market. This protected quota, therefore, appears to serve as a shield, masking their operational inefficiencies and questionable secondary market dealings. The ease of this guaranteed income stream also prompts a serious inquiry into whether it contributes to a lack of rigorous scrutiny and investigation by regulatory bodies into their internal transactions.

The silence of regulatory bodies like the Nepal Securities Board (SEBON) and Nepal Stock Exchange (NEPSE) in the face of such widespread market distortions, where public money is funneled into worthless companies, is deeply concerning. This is no longer a time for mere statements or passive observation; it demands decisive action. To safeguard public investments, SEBON must issue stringent directives, without a moment's delay, compelling institutional investors to allocate funds exclusively to strong, stable companies with a proven track record of consistent dividends. The current regulatory framework, while existing, appears insufficient to curb these malpractices, necessitating a more proactive and interventionist approach.

Immediate and robust intervention from regulatory authorities is imperative. Firstly, SEBON must, within 24 hours, issue strict guidelines imposing investment limits and stringent criteria. This would explicitly prohibit mutual funds and other institutional investors from purchasing shares of companies that do not pay dividends, are consistently incurring losses, or possess negative net worth from the secondary market. Such a directive would serve as a crucial barrier against reckless investment. Secondly, NEPSE must establish a sophisticated system for meticulous monitoring of suspicious transactions. Should any fund or insurance company suddenly begin acquiring substantial quantities of shares from financially weak companies, NEPSE should immediately halt such transactions and launch a thorough investigation into potential internal collusion and manipulation. This proactive surveillance is vital to detect and prevent illicit activities before they cause significant damage.

The persistent question remains: why does public money continue to flow into companies that offer no dividends? Despite these institutions boasting large teams of experts, including Chartered Accountants, and sophisticated market research mechanisms, their continuous acquisition of shares from financially failing companies strongly suggests underlying insider trading and commission-driven schemes. It appears that these institutions are being exploited as a dumping ground for distressed assets. Unscrupulous promoters and large share players allegedly entice officials from mutual funds, insurance companies, and PMS with hefty commissions to offload their "toxic" and failing shares. This creates a perverse incentive where the risk is entirely borne by the public, while the operators of these funds and PMS services continue to collect annual management fees and commissions from public funds, irrespective of the investment's performance. This detachment from risk encourages them to gamble in irresponsible sectors. Furthermore, there is a growing prevalence of artificial price inflation, or "cornering," where the share prices of companies with no dividend history are artificially boosted, trapping public money, while significant internal transactions and illicit gains are made behind the scenes.

The stark contrast between the declared losses of these funds and insurance companies and the burgeoning wealth of their Chief Executive Officers (CEOs) and top management is alarming. While ordinary investors face financial ruin, the personal assets and bank balances of those at the helm of these institutions appear to flourish. This disparity demands immediate scrutiny. The personal assets of CEOs and directors of institutions found to be misinvesting public money must be brought under the scanner without delay. SEBON, NEPSE, and the Nepal Insurance Authority must jointly initiate forensic audits of such questionable investment decisions. If found guilty, those responsible must face severe legal consequences, including asset forfeiture and imprisonment, to restore accountability and deter future malpractices.

In conclusion, the notion that institutional investors inherently bring stability to the market has proven to be a dangerous illusion in the Nepali context. To protect their investments, ordinary citizens must become more vigilant and assertive. It is crucial for investors to regularly review the monthly Net Asset Value (NAV) reports of the mutual funds they have invested in, scrutinizing the portfolio holdings. Furthermore, attending Annual General Meetings (AGMs) and vociferously questioning the board of directors and CEOs about investment strategies and performance is paramount. Public money cannot, and must not, be allowed to become a tool for personal gain or market manipulation. Until the perpetrators within insurance companies and mutual funds who are responsible for squandering billions of rupees of public money on non-dividend-paying companies are brought to justice, Nepal's share market cannot achieve genuine transparency and safety. SEBON and NEPSE must cease their delay and take immediate, decisive action to restore integrity and investor confidence in the market.