On October 15, the Securities Board of Nepal published a draft policy that says something unusual for a market regulator: it wants the country's biggest pools of savings money to buy more shares. The draft Institutional Investor Policy 2083 proposes that institutional investors allocate 15 to 30 percent of their portfolios to listed securities, alongside indicative ranges for government securities, bank deposits, bonds, mutual funds, infrastructure securities and small businesses. In a market SEBON itself describes as dominated by individual investors, that would be a structural shift.
The document is more than an allocation table. According to the reports on its publication, the draft builds a full framework for how institutions enter and operate in the primary and secondary markets: classification and registration of institutional investors, investment limits and diversification rules, eligible financial instruments, corporate governance, risk management, market conduct, disclosure requirements, regulatory supervision, and phased implementation. It also proposes the legal and regulatory reforms needed to make institutional participation work, plus coordination among the relevant authorities. SEBON has invited constructive feedback and suggestions from stakeholders before it finalizes the policy.
The draft comes in a deliberate sequence. It is aligned with the Capital Market Development Roadmap 2083, SEBON's own capital market policy for fiscal year 2083/84, and the Ministry of Finance's 21-point Capital Market Strengthening and Revival Action Plan, announced on Bhadra 29, 2083. The action plan's capital-market chapter explicitly names the players this policy targets: the Employees Provident Fund, the Citizen Investment Trust (CIT), the Social Security Fund, insurance companies and mutual funds, whose portfolios the plan wants rebalanced away from their heavy concentration in bank deposits. This is not a standalone idea. It is the institutional-investor chapter of the government's market revival program.
The draft sorts institutional investors into five categories. Category A covers financial institutional investors: commercial banks, development banks and finance companies. Category B covers long-term savings-based investors: the Employees Provident Fund, the Citizen Investment Trust, the Social Security Fund and other pension or long-term savings funds established under law. Category C covers insurance investors: life, non-life, reinsurance and microinsurance companies. Category D covers collective investment institutions: investment companies, exchange-traded funds, index-based funds, real estate investment trusts and other collective investment schemes. Category E covers other eligible investors: sovereign and strategic funds, development finance institutions, foreign institutional investors and foreign pension funds.
The proposed allocation ranges are the part that will draw the most debate. The draft suggests government securities at 20 to 30 percent, bank fixed deposits at 10 to 20 percent, institutional bonds and debentures at 10 to 20 percent, listed securities at 15 to 30 percent, mutual funds and ETFs at 5 to 10 percent, infrastructure and project securities at 5 to 10 percent, and small and medium-sized enterprises at up to 5 percent. To limit concentration risk, the draft also proposes capping investment in a single issuer's securities at 3 to 5 percent of total investment assets, and equity investment in any single sector at 20 to 25 percent. Every one of these numbers is a proposal, not a rule. SEBON will set the final form only after the feedback round.
Why this matters is straightforward. A market run by individual traders behaves like one: short horizons, sentiment swings, thin liquidity when it is needed most. Institutional money behaves differently. Pension funds and insurers invest on decades-long horizons, trade less, and can absorb the selling panics that retail crowds cannot. SEBON's stated expectation is that greater institutional participation would deepen the market, improve liquidity and transparency, and strengthen overall stability. The professionalization angle matters too: the draft's governance, risk management and disclosure requirements would impose a standard of conduct on the market's largest players that retail participants could never be asked to meet.
The honest problem sits inside the draft itself. The policy asks institutions to trust a market whose supporting rules are still being written, and the document concedes as much: it proposes legal and regulatory reforms as a necessary part of the package, which means the framework for institutional participation does not fully exist yet. Phased implementation is doing honest work in that sentence. And the draft arrives inside a crowded consultation pipeline. The intraday trading concept paper went out on September 24. The draft IPO eligibility guidelines went out on September 17 and are already drawing formal pushback from the hydropower producers' association. The promoter-share 15-day notice rule is still being argued over. These are announcements, not law, and each one can be diluted, delayed or dropped before it reaches the market.
The timing is worth noting. The draft landed during a market upswing: NEPSE rose for seven consecutive sessions into the Dashain holiday, closing October 16 at 2,634.17 with turnover of Rs 4.88 billion, and analysts quoted in the press were already warning that bank-led gains would need broader participation and higher turnover to survive the holiday break. The market then went silent for the October 19 to 23 Dashain closure. A draft policy that needs long-term money is sitting open for comment while the short-term money is on holiday. That is not a flaw in the plan. It is a reminder that policy and trading operate on different clocks.
The limits of this story should be stated plainly. None of the allocation ranges is binding today. The 15 to 30 percent figure for listed securities is indicative, the concentration caps are ranges, and the final policy may look different after stakeholder feedback. A single-month rally is a noisy data point, not a trend. And the institutions being courted are professionals: they will run their own numbers on liquidity, governance and exit routes before committing a rupee. The draft can set the table, but it cannot make them sit down.
That is the tension the policy leaves open. Nepal has large, patient pools of savings money sitting mostly in bank deposits, and a stock market that would be healthier with them as anchor investors. SEBON has now said, in writing, that it wants them in. Whether they come will depend on something no draft can decree: a market they trust enough to stay in. The feedback window is open. What the institutions say back will be the real story.
This article is published for research and education purposes only. It is not investment advice, and nothing here should be read as a recommendation to buy, sell, or hold any security. Figures cited reflect publicly reported information at the time of writing and may be revised as new information is published.