Mutual Funds in Nepal: 5 Questions Before You Invest

If you don't have time to research individual companies, read annual reports and follow every NRB directive (which is most of us), mutual funds sound like the perfect answer. A professional picks the shares, you just invest.

Sometimes it really is that simple. Sometimes it isn't. Nepal's mutual fund market has grown a lot in recent years, and the funds vary widely in structure, cost and quality. Here are the questions I'd ask about any fund before putting money in.

First, what is a mutual fund?

A mutual fund pools money from many investors and invests it according to a stated plan, usually in shares, bonds, fixed deposits or a mix. A fund manager makes the day-to-day decisions.

When you invest, you get units of the fund. In Nepal, units usually have a face value of Rs 10. The value of each unit, called the NAV (Net Asset Value), goes up and down with the value of whatever the fund holds.

In Nepal, fund managers are usually the capital or investment arms of commercial banks, and the funds are regulated by SEBON.

Question 1: Is it closed-end or open-end?

This is the single most important distinction in Nepal, and many investors don't understand it.

Closed-end funds

• Raise money once through an IPO, for a fixed term (often 7–10 years)
• Are listed on NEPSE and trade like shares
• You buy and sell units through your broker, from other investors
• The market price can be very different from the NAV

That last point matters a lot. If a closed-end fund's NAV is Rs 11 but it trades at Rs 14, you're paying Rs 14 for Rs 11 worth of assets. That's a premium. If it trades at Rs 9, you're buying Rs 11 of assets for Rs 9. That's a discount.

Closed-end funds in Nepal have traded at both large premiums and large discounts at different times, often driven by market mood rather than the fund's actual performance.

Fund managers publish NAV regularly (often weekly). Check it before buying.

Open-end funds

• Have no fixed size. You can buy new units from the fund manager anytime
• You sell (redeem) units back to the fund manager
• The price you pay or receive is based on NAV (sometimes with a small load or fee)
• Many offer SIPs (Systematic Investment Plans), where you invest a fixed amount every month

Open-end funds avoid the premium/discount problem, and SIPs are a great way to build the investing habit. I've written about the power of regular investing in my compound growth post.

Question 2: What does it actually hold?

The fund's name doesn't tell you much. A fund called "Growth Fund" or "Equity Fund" could hold almost anything within its rules.

Look at the latest portfolio disclosure, usually published monthly or quarterly on the fund manager's website. Check:

• What percentage is in shares vs fixed deposits vs bonds vs cash?
• Which sectors? Is it heavy in banks? Hydro?
• What are the top 10 holdings?
• Overlap with what you already own. Many funds hold the same big commercial banks and hydro companies. If you already own those directly, buying the fund doesn't diversify you as much as you'd think. (See my post on diversification.)

Question 3: What does it cost?

Management fees and other expenses come out of the fund every year, whether it performs well or not. You don't see a bill. The costs just reduce the NAV.

Check:

• Management fee (percentage of assets per year)
• Depository, trustee and other fees
• Entry or exit loads (fees for buying or redeeming, especially early redemption in open-end funds)
• For closed-end funds: broker commission when you buy and sell on NEPSE

A difference of 1% a year in fees doesn't sound like much. Over 15 years of compounding, it adds up to a meaningful chunk of your returns.

Question 4: How easy is it to get out?

• Open-end: what's the redemption process? How long until you get your money? Is there an exit load if you redeem within a certain period? Are there any lock-in periods (some tax-saving schemes have them)?
• Closed-end: is there enough trading volume on NEPSE to sell when you want, at a fair price? What happens at maturity? Usually the fund is liquidated or converted, and investors get NAV.

Question 5: Is it properly approved and managed?

• Check that the fund and its manager are registered with SEBON.
• Read the scheme documents (offer document and any updates), not just the bank's poster or a WhatsApp forward.
• Look at who the fund manager is, how long they've been managing funds, and how their other funds have done.
• Check who the depository and trustee are.

On past returns

A fund that did great last year isn't guaranteed to do great next year. In fact, a fund that topped the charts in a strong market might simply have been taking more risk.

When comparing funds:

• Look at performance over several years, not one.
• Compare with similar funds (equity vs equity, debt vs debt).
• Look at how it did in bad years, not just good ones. How far did NAV fall when the market fell?
• Compare NAV growth, plus any distributions, against the overall market.

Dividends from mutual funds

Many funds in Nepal pay out dividends (cash or bonus units) from realised gains. Keep in mind:

• When a fund pays a dividend, its NAV drops by that amount. It's your own money coming back to you, not extra profit.
• Some open-end funds offer a "growth" option (no dividends; gains stay invested) and a "dividend" option. For long-term investing, growth options let compounding work better.
• Tax may apply on distributions. Check current rules.

Who are mutual funds good for?

• People who want market exposure but don't have time to research individual companies
• People who want to invest small amounts regularly (SIP)
• Beginners learning how markets work
• Anyone who wants some professional management and diversification

They're less useful if you'd just be buying the same handful of large companies you already own, through a fund charging you a fee for it.

Bottom line

A mutual fund is still invested in the market. It can fall, and when NEPSE falls, most equity funds fall with it. Don't invest based only on a friend's experience or an advertised return. Pick one you understand, check what it holds and what it costs, and stay with it through a rough patch. That's where the real benefit comes from.

General information, not personal financial advice. Rules, rates and fees change, so check with the official source (SEBON, NRB, CDSC, IRD or the Nepal Insurance Authority) before you act. Have a question? Leave it in the comments.

Mutual Funds in Nepal: 5 Questions Before You Invest

If you don't have time to research individual companies, which is most of us, mutual funds sound like the perfect answer. A professional picks the shares, you just invest. Sometimes it really is that simple. Sometimes it isn't.

Here are the five questions I'd ask about any fund.

1. Is it closed-end or open-end?

In Nepal you'll see both. Closed-end funds are listed on NEPSE and trade like shares, often at a price quite different from their actual value (NAV). Open-end funds let you buy and redeem units directly with the fund manager at NAV, and many offer SIPs (monthly investment plans).

Buying a closed-end fund well above its NAV means paying more than the fund's assets are worth.

2. What does it actually hold?

Look at the latest portfolio disclosure. Many funds hold the same big banks and hydro companies you might already own, so check for overlap.

3. What does it cost?

Management fees and other expenses come out of the fund every year, whether it performs well or not.

4. How easy is it to get out?

Open-end: what's the redemption process and is there an exit load? Closed-end: is there enough trading volume to sell when you want?

5. Is it properly approved?

Check that the fund and its manager are registered with SEBON. Read the scheme documents, not just the bank's poster.

On past returns

A fund that did great last year isn't guaranteed to do great next year. Look at performance over several years, compared with similar funds, and through both good and bad markets.

A mutual fund is still invested in the market. It can fall, and when NEPSE falls, most funds fall with it. Pick one you understand and can stay with through a rough patch.

General information, not personal financial advice. Rules, rates and fees change, so check with the official source before you act.

Got a Right Share Offer? Here's What to Check First

You own shares in a company, and suddenly there's a notice: "1:1 right share issue." It sounds like a gift. It isn't. It's the company asking you for more money.

That isn't necessarily bad. Plenty of good companies raise money this way. But it does deserve a proper look, and it's one of those decisions where doing nothing is also a decision with consequences.

How right shares work

A right share issue (or rights issue) lets existing shareholders buy additional shares in proportion to what they already own, usually at a price below the current market price. In Nepal, right shares are often offered at the face value of Rs 100, though not always.

The ratio tells you how many you can buy:

• 1:1 — one new share for every one you hold. Own 200, apply for up to 200.
• 10:3 — three new shares for every ten you hold. Own 200, apply for up to 60.
• 2:1 — one new share for every two you hold. Own 200, apply for up to 100.

The basic process:

1. The company gets approval and announces the issue, ratio and price.
2. A book closure date is set. You need the shares in your Demat by then to be eligible.
3. An application window opens, usually a few weeks long.
4. You apply through Mero Share (or the channel in the official notice), and the amount is blocked in your bank account.
5. After the window closes, the right shares are allotted and credited to your Demat.
6. Shares that existing shareholders don't take up are typically auctioned to the public later.

Why the price adjusts

When a company offers new shares below the market price, the overall value per share gets diluted. After book closure, the market price usually adjusts down.

A rough formula for the theoretical adjusted price:

(Market price + (Right price × ratio)) ÷ (1 + ratio)

Example: market price Rs 400, right price Rs 100, ratio 1:1.

(400 + 100) ÷ 2 = Rs 250

• Before: 100 shares × Rs 400 = Rs 40,000
• If you apply: you pay Rs 10,000 for 100 more shares. Now 200 shares × Rs 250 = Rs 50,000. You put in Rs 10,000, so your total is still Rs 50,000. No gain or loss from the issue itself.
• If you don't apply: you still have 100 shares, now at Rs 250 = Rs 25,000. You've effectively lost Rs 15,000 in value. Your share of the company is smaller too.

That's why ignoring a right issue isn't "free". In practice the market price after adjustment won't match the formula exactly, but the principle holds.

Questions I ask before applying

Why does the company need the money?

This is the most important question. Read the offer document.

• To expand or build something specific: a new hydro project, more branches, a factory expansion. Could be good, if the plan makes sense.
• To meet regulatory capital requirements: very common for banks, insurance companies and microfinance in Nepal. Not necessarily bad, but it's not growth either.
• To cover losses or repay debt: a warning sign. Ask how the company got into that situation and whether more money will fix it.
• For a hydro project that's delayed or over budget: be careful. Sometimes right shares are needed because the original plan didn't work.

Can I afford it?

200 shares at Rs 100 is Rs 20,000 you need to have ready within the window. If you hold shares in several companies that announce right issues around the same time, this adds up quickly.

Don't borrow to apply for right shares unless you've thought it through very carefully.

Would I buy more of this company anyway?

Imagine the right issue didn't exist. Would you buy more shares of this company at today's price? If yes, applying makes sense. If no, the right issue doesn't change that.

What will the company look like after?

More shares means profit needs to grow for EPS to hold. If the new money doesn't generate returns, EPS and dividends per share will fall. (I explain why in my EPS and P/E post.)

If you decide not to apply

Some options to consider:

• Sell before book closure if you don't want to put in more money and don't want to hold diluted shares. (Remember capital gains tax and fees.)
• Apply for part of your entitlement if you can't afford the full amount. You don't have to apply for all of it.
• Accept the dilution if you're comfortable with a smaller share of the company.

Right share entitlements in Nepal generally aren't tradable separately, unlike in some other countries, so you can't just "sell the right".

Don't miss the practical steps

• Note the book closure date. Buying a day before isn't enough. Settlement takes time, so the shares need to be in your Demat before book closure.
• Note the application window. I've seen people lose out simply because they didn't notice the deadline. Set a reminder on your phone.
• Check your bank balance. The full amount needs to be in your linked bank account when you apply.
• Check that Mero Share and your Demat are active. An expired account means a missed application.
• After allotment, check that the right shares appear in your Demat.

Unclaimed rights may be auctioned later, but you won't get anything for them if you missed the window. Don't count on it as a backup plan.

Stay safe

Right issues are a common hook for scams. Use only official channels: Mero Share and the issue manager or company named in the official notice. Ignore "help desk" numbers that pop up in comments or random Facebook pages. Never share your Mero Share password or OTP.

Bottom line

Treat a right offer as a fresh investment decision. Understand why the company needs money, what it will do with it, and whether you'd want more of this company anyway. If you wouldn't buy more at this price, you don't have to just because they asked. Just understand what not applying means for you.

General information, not personal financial advice. Rules, rates and fees change, so check with the official source (SEBON, NRB, CDSC, IRD or the Nepal Insurance Authority) before you act. Have a question? Leave it in the comments.

Got a Right Share Offer? Here's What to Check First

You own shares in a company, and suddenly there's a notice: "1:1 right share issue." It sounds like a gift. It isn't. It's the company asking you for more money.

That isn't necessarily bad, but it does deserve a proper look.

How it works

A right share lets existing shareholders buy additional shares, usually at a price below the current market price (often Rs 100 per share). In a 1:1 ratio, if you own 200 shares you can apply for up to 200 more.

Questions I ask

• Why does the company need the money? To expand? To meet regulatory capital requirements? To cover losses? The answer matters a lot.
• Can I afford it? 200 shares at Rs 100 is Rs 20,000 you need to have ready within the window.
• What happens if I don't apply? Your ownership percentage gets diluted, and the market price usually adjusts after book closure. Doing nothing isn't free either.

Don't miss the practical steps

Note the book closure date (you need to hold the shares by then) and the application window. Apply through Mero Share or the channel stated in the official notice. Unclaimed rights may be auctioned later, but don't count on that.

I've seen people lose out simply because they didn't notice the deadline. Set a reminder on your phone.

Stay safe

Use only official channels. Ignore "help desk" numbers that pop up in comments or random Facebook pages, and never share your Mero Share password or OTP.

Treat a right offer as a fresh investment decision. If you wouldn't buy more of this company at this price anyway, you don't have to just because they asked.

General information, not personal financial advice. Rules, rates and fees change, so check with the official source before you act.

Cash Dividend vs Bonus Shares: Why Bonus Isn't Free Money

Every book-closure season, the excitement is the same: "20% bonus announced!" People rush to buy before the book closure date. Then the price adjusts and they wonder where the gain went.

Let's clear this up.

Cash dividend

The company pays you cash from its profits. If you own 100 shares and it declares a 10% cash dividend on a Rs 100 face value, you get Rs 1,000 before tax. Tax is withheld before it reaches your bank account.

Real money leaves the company and comes to you.

Bonus shares

The company gives you extra shares instead. A 20% bonus on 100 shares gives you 20 more, for 120 total.

But no money left the company. The same business is just cut into more pieces. That's why the market price adjusts downward after book closure. If a share was Rs 600 before a 20% bonus, the adjusted price is roughly Rs 500. Your 120 shares at Rs 500 are worth about what your 100 shares at Rs 600 were.

Think of it as cutting a pizza into 10 slices instead of 8. You don't get more pizza.

Also note: tax on bonus shares is typically payable on their face value, so you may need to pay some cash even though you received no cash.

Which is "better"?

Neither, automatically. A company paying big dividends isn't necessarily healthier than one reinvesting profits to grow. Some Nepali banks have issued bonus shares year after year mainly to meet capital requirements, which tells you something different from "the business is booming."

Before you act

Read the company's official announcement for the book closure date, the ratio and whether AGM approval is still pending. For tax, check with the IRD or a tax professional, since rates and rules change.

Don't buy a share only for its dividend or bonus. Buy it because you like the business at that price.

General information, not personal financial advice. Rules, rates and fees change, so check with the official source before you act.

Cash Dividend vs Bonus Shares: Why Bonus Isn't Free Money

Every book-closure season, the excitement is the same. "20% bonus announced!" The WhatsApp groups go wild. People rush to buy before the book closure date. Then the price adjusts and they wonder where the gain went.

Let's clear this up properly, because the difference between a cash dividend and a bonus share is one of the most misunderstood things in the Nepali share market.

A few terms first

• Face value (par value): the nominal value of a share, usually Rs 100 in Nepal (some companies, like mutual fund units, use Rs 10). Dividend percentages are calculated on this, not on the market price.
• Book closure date: the date the company "closes its books" to decide who's eligible. You need to own the shares (settled in your Demat) before this date to get the dividend or bonus.
• AGM: the Annual General Meeting where shareholders approve the proposed dividend or bonus.

Cash dividend

The company pays you cash from its profits.

If you own 100 shares and the company declares a 10% cash dividend, that's 10% of the Rs 100 face value, so Rs 10 per share. You get Rs 1,000 before tax. Tax is withheld at source before it reaches your bank account.

Real money leaves the company and comes to you. The company now has less cash, and the share price usually adjusts down by roughly the dividend amount after book closure.

Note that a "10% dividend" sounds big, but it's on face value. If the share trades at Rs 800, Rs 10 is only a 1.25% return on the market price. That's called the dividend yield, and it's a more honest way to compare.

Bonus shares

The company gives you extra shares instead of cash. A 20% bonus on 100 shares gives you 20 more, for 120 total.

But no money left the company. The company has simply moved some of its retained earnings into share capital on the balance sheet. The same business is now cut into more pieces.

That's why the market price adjusts downward after book closure.

How the price adjustment works

The adjustment roughly follows this logic:

Adjusted price ≈ price before book closure ÷ (1 + bonus ratio)

So for a 20% bonus on a share at Rs 600: Rs 600 ÷ 1.2 = Rs 500.

• Before: 100 shares × Rs 600 = Rs 60,000
• After: 120 shares × Rs 500 = Rs 60,000

Your total value is the same. (If there's also a cash dividend, the price adjusts for that too.)

Think of it as cutting a pizza into 10 slices instead of 8. You don't get more pizza.

After the adjustment, the price can of course move up or down based on the market. But the bonus itself didn't create value.

The tax catch on bonus shares

This surprises a lot of people. Bonus shares are taxed, typically on their face value, even though you didn't receive any cash.

That's why companies announcing a bonus often also announce a small cash dividend at the same time, which is mostly there to cover the tax on the bonus. For example: "20% bonus and 1.05% cash dividend (for tax purpose)". The cash portion is withheld to pay the tax, and you might receive little or nothing in your bank account.

If there's no cash dividend to cover it, you may need to pay the tax yourself before the bonus shares are credited. Check the company's notice and your DP's instructions.

Tax rates and rules change, so check with the IRD or a tax professional for current treatment.

Why do companies issue bonus shares?

Several reasons, not all of them exciting:

• To meet capital requirements: many Nepali banks and insurance companies have had to increase their paid-up capital to meet regulatory minimums. Bonus shares are one way to do that without asking shareholders for more money.
• To keep cash in the business: instead of paying out cash, the company keeps it for growth or to build reserves.
• To make shares more affordable: a lower per-share price after adjustment can increase trading.
• Because shareholders like them: this is partly psychological. Many investors in Nepal feel happier with "more shares" even when the value is the same.

A company issuing bonus shares year after year mainly to meet capital requirements is telling you something different from "the business is booming".

The downside of bonus shares nobody talks about

When the share count keeps growing, the company needs to keep growing its profit just to maintain the same EPS. If profit doesn't keep pace, EPS falls, and future dividends per share can shrink. I explain this more in my post on EPS and P/E.

Which is "better"?

Neither, automatically.

• A company paying big cash dividends isn't necessarily healthier than one reinvesting profits to grow. Sometimes high dividends mean the company has nothing better to do with its money.
• A company issuing bonus shares isn't necessarily doing well. Sometimes it's just meeting a regulatory requirement.
• A company paying nothing isn't necessarily bad, as long as it's reinvesting wisely.

What matters is the underlying business: cash flow, debt, profit growth, governance. Here's how to read the annual report to judge that.

The "buy before book closure" trap

Every year, people buy shares a few days before book closure to "get the bonus". Then:

1. The price often rises in the days before book closure, because everyone has the same idea.
2. They buy at the higher price.
3. After book closure, the price adjusts down.
4. They may have to pay tax on the bonus.
5. They've paid broker commission on the purchase.

Net result: often a loss. There's no free lunch in buying just before book closure.

Before you act

• Read the company's official announcement for the book closure date, the bonus and cash ratios, and whether the proposal still needs AGM or regulatory approval. Proposed dividends can be changed or rejected.
• Remember settlement takes a couple of days. If you buy too close to book closure, the shares might not be in your Demat in time.
• Check tax with the IRD or a tax professional.
• Bonus shares can take some time to appear in your Demat after the AGM. Check Mero Share.

Bottom line

Don't buy a share only for its dividend or bonus. Buy it because you like the business at that price. Dividends and bonuses are the result of a good business, not the reason it's good.

General information, not personal financial advice. Rules, rates and fees change, so check with the official source (SEBON, NRB, CDSC, IRD or the Nepal Insurance Authority) before you act. Have a question? Leave it in the comments.

EPS and P/E Ratio: Handy Numbers, Not Buy Signals

"P/E is only 12, it's cheap!" I see some version of this every week. Sometimes it's true. Often it isn't. Here's what these two numbers actually mean.

EPS: profit per share

Earnings per share = the company's profit (for ordinary shareholders) ÷ number of shares.

If a company earned Rs 50 crore and has 1 crore shares, EPS is Rs 50.

Watch out for a few things:

• A one-time gain (selling property, say) can make EPS jump for one year only.
• Bonus shares and right shares increase the share count, so EPS can fall even if profit didn't.
• Quarterly EPS is often "annualised" by multiplying it out. That's a guess, not a result.

P/E: how much you're paying for that profit

P/E = share price ÷ EPS.

If that same share trades at Rs 600 and EPS is Rs 50, the P/E is 12. In plain terms, you're paying Rs 12 for every Rs 1 of yearly profit.

Why "low P/E = cheap" can trick you

A low P/E might mean the market expects profits to fall, or that last year's profit was a one-off. A high P/E might mean the market expects strong growth, or it might just be hype. In Nepal, you'll see some hydropower and insurance companies trading at P/Es in the hundreds, while some banks trade at much lower levels. The ratio alone can't tell you who's right.

Using them sensibly

Compare companies in the same sector, using numbers from the same period. Then look at growth, debt and cash flow before drawing conclusions. Get the EPS from the company's actual published report, not a screenshot someone forwarded.

These ratios are good for raising questions. They don't answer them for you.

General information, not personal financial advice. Rules, rates and fees change, so check with the official source before you act.

EPS and P/E Ratio: Handy Numbers, Not Buy Signals

"P/E is only 12, it's cheap!" I see some version of this every week in investor groups. Sometimes it's true. Often it isn't.

EPS and P/E are probably the two most quoted numbers in Nepali share market discussions. They're useful. But they're also easy to misread, and some people use them to make weak shares look like bargains. Here's what they actually mean.

EPS: profit per share

Earnings per share = net profit available to ordinary shareholders ÷ number of ordinary shares

If a company earned Rs 50 crore in profit and has 1 crore shares, EPS is Rs 50.

That's it. EPS tells you how much profit the company made for each share. It lets you compare profit over time even when the number of shares changes.

Things that can distort EPS

One-time gains

If a company sells a building or an investment, that gain can make profit, and EPS, jump for one year only. Next year, EPS "falls" even if the core business is unchanged. Always check the notes for one-off items.

Bonus and right shares

When a company issues bonus or right shares, the number of shares goes up. Even if profit stays the same, EPS goes down because the profit is divided among more shares.

Example: profit Rs 50 crore, 1 crore shares, EPS Rs 50. The company issues a 25% bonus, so now there are 1.25 crore shares. Same profit, but EPS drops to Rs 40. Nothing bad happened to the business.

This is why comparing EPS across years needs care. Look for "adjusted" or "restated" EPS in reports.

Annualised quarterly EPS

In Nepal, you'll often see quarterly EPS "annualised", meaning multiplied to estimate a full year. If Q1 EPS is Rs 12, someone might say annualised EPS is Rs 48.

That's a guess, not a result. Many businesses are seasonal. Hydropower companies generate much more in the monsoon than in winter. Banks may book different amounts in different quarters. Annualising one strong quarter can make a company look far better than it is.

Accounting choices

Provisions, depreciation methods and how certain income is recognised can all shift reported profit. Two companies with similar businesses can report different EPS partly because of accounting choices.

P/E: how much you're paying for that profit

P/E ratio = share price ÷ EPS

If that same share trades at Rs 600 and EPS is Rs 50, the P/E is 12.

In plain terms: you're paying Rs 12 for every Rs 1 of yearly profit. Another way to think about it: if profit stayed exactly the same forever and was all paid to you, it would take 12 years to earn back your purchase price.

A higher P/E means you're paying more for each rupee of current profit. A lower P/E means you're paying less.

Why "low P/E = cheap" can trick you

A low P/E might mean:

• The company really is undervalued (great, if true)
• The market expects profits to fall
• Last year's profit was inflated by a one-off gain
• The company has problems the numbers don't show yet: bad loans, debt or governance issues
• It's in a sector the market doesn't like right now, for good reasons

A high P/E might mean:

• The market expects strong growth
• Current profits are temporarily low (a project just started generating, say)
• It's just hype

In Nepal, you'll see some hydropower and insurance companies trading at P/Es in the hundreds, while some commercial banks trade at much lower levels. Neither number, by itself, tells you who's right.

When P/E doesn't work at all

• Negative EPS: if the company made a loss, P/E is meaningless. Some websites show it as negative or blank.
• Tiny EPS: if profit is barely above zero, P/E can be 500 or 1,000, which tells you nothing useful.
• Projects under construction: a hydro company still building its plant may have no meaningful earnings yet.

Other numbers to look at alongside

P/E works better when combined with other measures:

• Book value per share (net worth ÷ shares): what the company's assets minus liabilities are worth per share, on paper.
• P/B ratio (price ÷ book value): often used for banks.
• ROE (return on equity, profit ÷ shareholders' equity): how efficiently the company uses shareholders' money.
• Debt levels: a low P/E with huge debt is a different story from a low P/E with no debt.
• Dividend history: does the company actually return cash to shareholders?
• Growth rate: a P/E of 25 might be reasonable for a company growing profit 30% a year, and expensive for one growing 3%.

Using them sensibly: a quick example

Say you're comparing two commercial banks (made-up numbers):

• Bank A: price Rs 400, EPS Rs 25, P/E 16. NPL rising, profit flat for 3 years.
• Bank B: price Rs 500, EPS Rs 25, P/E 20. NPL low and stable, profit growing steadily.

Bank A looks "cheaper" by P/E. But Bank B might be the better business, and the extra price might be justified. The P/E alone would have pointed you the wrong way.

Practical tips

• Compare companies within the same sector. Comparing a bank's P/E to a hydro company's P/E is mostly meaningless.
• Use numbers from the same period. Don't compare one company's latest annualised EPS with another's audited annual EPS.
• Get the EPS from the company's actual published report, not a screenshot someone forwarded. Many share-market websites calculate these differently.
• Look at trends over several years, not one number.
• Read the annual report to understand why EPS is what it is.

Bottom line

EPS and P/E are good for raising questions. Why is this P/E so low? Why did EPS jump this quarter? How does this compare with similar companies? But they don't answer those questions for you. Anyone who tells you to buy something "because P/E is low" without any other reasoning isn't doing analysis. They're doing marketing.

General information, not personal financial advice. Rules, rates and fees change, so check with the official source (SEBON, NRB, CDSC, IRD or the Nepal Insurance Authority) before you act. Have a question? Leave it in the comments.

How I Read a Company's Annual Report (Without an Accounting Degree)

Annual reports are long, dense and full of photos of board members cutting ribbons. Most investors never open them. That's a shame, because 30 minutes with one can tell you more than a month of share-market Facebook groups.

Here's how I go through one.

1. Start with what the business actually does

Read the overview or chairman's message. Can you explain in one sentence how this company makes money? If you can't, stop there. You're not ready to own it.

2. Compare at least three years of numbers

One year's profit tells you almost nothing. Look at revenue, net profit and total debt over several years. Is it growing steadily, jumping around, or quietly shrinking?

3. Check the cash flow statement

This is the part most people skip, and it's the one I trust most. A company can show a profit on paper while very little cash comes in. If "cash from operations" is weak year after year while profits look great, ask why.

4. Read the notes (at least skim them)

The notes explain the headline numbers: loans, related-party transactions, lawsuits, one-time gains. A big jump in profit sometimes turns out to be the sale of a piece of land, not better business.

5. Read the auditor's report

Usually it's a short page saying everything is fine. If the auditor adds a "qualified opinion" or an "emphasis of matter," read it carefully. That's the auditor raising a concern.

For banks and financial companies

Look at NPL (non-performing loans), capital adequacy and distributable profit. These matter more than the headline profit figure.

Get reports from the company's official website or NEPSE disclosures, and check the date. Last year's report won't show this year's problems.

General information, not personal financial advice. Rules, rates and fees change, so check with the official source before you act.

How I Read a Company's Annual Report (Without an Accounting Degree)

Annual reports are long, dense and full of photos of board members cutting ribbons and handing over cheques. Most investors never open them. That's a shame, because 30 minutes with one can tell you more than a month of share-market Facebook groups.

You don't need an accounting degree. You need to know where to look and which questions to ask. Here's how I go through one.

Where to find annual reports

• The company's official website, usually under "Investor Relations" or "Reports"
• NEPSE's website, through company disclosures
• Quarterly reports are also published in newspapers and on company websites

Most Nepali companies follow a fiscal year that ends in mid-July (end of Asar). Annual reports usually come out a few months later, around the AGM.

Always check the date. A report from two years ago won't show this year's problems.

1. Start with what the business actually does

Read the company overview, the chairman's message and the directors' report. Can you explain in one sentence how this company makes money?

• "It's a bank. It takes deposits and lends them out at higher interest."
• "It produces electricity from a river project and sells it to NEA under a PPA."
• "It makes cement and sells it to builders."

If you can't, stop there. You're not ready to own it.

The chairman's message is usually upbeat, so read it with a pinch of salt. But it does tell you what management thinks is important, and sometimes what they're worried about.

2. Compare at least three years of numbers

One year's profit tells you almost nothing. Look at these over several years:

• Revenue (or total income): is the business growing?
• Net profit: is it growing along with revenue, or are margins shrinking?
• Total debt: is it rising faster than the business?
• Shareholders' equity: is the company building value over time?

Most annual reports include a "five-year summary" or "financial highlights" table. It's a goldmine. Start there.

Ask: is this growing steadily, jumping around, or quietly shrinking?

3. Check the cash flow statement

This is the part most people skip, and it's the one I trust most.

A company can show a profit on paper while very little cash actually comes in. This happens when customers haven't paid yet, when inventory is piling up, or when accounting choices make profits look better than reality.

Look at "cash flow from operating activities". Over several years, it should be roughly in line with net profit. If profits look great year after year but operating cash flow is weak or negative, ask why.

Also look at "cash flow from investing activities" (spending on new projects, equipment, etc.) and "financing activities" (borrowing, repaying loans, paying dividends). A company that pays dividends by borrowing more is a warning sign.

4. Read the notes (at least skim them)

The notes to the financial statements explain the headline numbers. This is where companies have to disclose the details. Look for:

• One-time gains: a big jump in profit sometimes turns out to be the sale of a piece of land, not better business.
• Related-party transactions: deals with companies owned by directors or promoters. Not always bad, but worth understanding.
• Loans and borrowings: interest rates, repayment schedules, what's pledged as security.
• Contingent liabilities: lawsuits, guarantees, tax disputes that could become real costs.
• Accounting policy changes: if the company changed how it counts something, profits can look different without the business changing.

5. Read the auditor's report

Usually it's a short page or two saying the financial statements give a "true and fair view". That's a clean (unqualified) opinion.

If the auditor adds a "qualified opinion", an "adverse opinion", a "disclaimer of opinion" or an "emphasis of matter", read it carefully. That's the auditor raising a concern, and it's one of the most important signals in the whole report.

Also note who the auditor is, and whether the company changes auditors often.

6. Look at governance

• Who's on the board? Do they have relevant experience?
• Are there independent directors?
• How much do directors and top management get paid compared with the company's profit?
• Who owns the promoter shares, and are any of them pledged?

For banks and financial companies

Banks are a huge part of NEPSE, and their reports need a slightly different lens. Look at:

• NPL (non-performing loans) ratio: what percentage of loans aren't being repaid. Rising NPL is a serious warning.
• Capital adequacy ratio: how much buffer the bank has against losses. It must stay above NRB's minimum.
• CD ratio (credit to deposit): how much of its deposits it has lent out.
• Net interest spread: the difference between what it earns on loans and pays on deposits.
• Distributable profit: after regulatory reserves, how much can actually be paid out as dividends. This can be very different from net profit.
• Loan concentration: is a big portion of lending to one sector?

For hydropower companies

• Actual generation vs. contracted energy under the PPA
• Any outages due to floods, landslides or transmission problems
• Debt levels and interest costs (many hydro projects are heavily loan-funded)
• Accumulated losses, if any
• Status of any new projects being built

A quick checklist

1. Can I explain the business in one sentence?
2. Is revenue and profit growing over 3–5 years?
3. Does operating cash flow roughly support profit?
4. Is debt manageable?
5. Any one-off gains inflating profit?
6. Clean auditor's opinion?
7. Anything worrying in risks, lawsuits or related-party deals?

When you don't understand something

Some terms will be unfamiliar. That's normal. Look them up, or ask someone who knows accounting. Don't guess. A wrong interpretation of a number can lead to a very wrong decision.

Reading annual reports won't remove uncertainty. Good companies have bad years, and reports only tell you about the past. But careful reading helps you ask better questions and avoid companies with obvious problems. Once you're comfortable, the next step is understanding valuation, starting with EPS and the P/E ratio.

General information, not personal financial advice. Rules, rates and fees change, so check with the official source (SEBON, NRB, CDSC, IRD or the Nepal Insurance Authority) before you act. Have a question? Leave it in the comments.