Nepal's Investment Sector — A Six-Tier Ecosystem

Executive Summary

Nepal's investment industry is fragmented across six functional tiers that collectively manage and intermediate over Rs 1 trillion of formal institutional capital — equivalent to roughly 16% of GDP. The three largest pools are state-controlled: EPF at approximately Rs 610 billion, CIT at Rs 333 billion, and the rapidly scaling Social Security Fund (SSF). Below this anchor layer sits a developing infrastructure finance tier (HIDCL and NIFRA, both NEPSE-listed), a small but accelerating private equity and venture capital segment, a retail mutual fund market of Rs 61 billion in AUM, and emerging diaspora capital channels.

Three structural shifts are reshaping the system in FY 81/82–82/83:

1. Bank deposit yields have collapsed. The commercial bank weighted average deposit rate fell 158 basis points — from 5.77% to 4.19% — in a single year. (Source: CIT 31st Annual Report FY 2081/82, Director's Report Section 2.) This is driving massive institutional rotation into government securities. CIT's T-bill holdings grew 7.7x in six months; government bond holdings grew 31x.

2. The Social Security Fund is structurally displacing CIT. SSF registered one million contributors after only six to seven years of operation, versus CIT's flagship scheme accumulating approximately 600,000 participants in 35 years. (Source: Social Security Fund Wikipedia; CIT AR 8182, Director's Report.) As government policy increasingly mandates SSF for new private-sector workers, SSF is the primary growth vehicle while existing pension pools manage inherited books.

3. The 2025 FITTA Ordinance has unlocked foreign capital into Specialized Investment Funds (SIFs) and PE funds. This is the single most consequential regulatory development in Nepal's capital markets in 2025 — foreign investors can now invest in Nepali companies through SEBON-registered SIFs and venture funds. (Source: Pradhan Law, "Act to Amend Some Nepal Acts," 2025.)

The Industry Map — Six Tiers

┌────────────────────────────────────────────────────────────────────┐
│  TIER 1 — STATE INSTITUTIONAL CAPITAL (THE ANCHOR LAYER)           │
│  EPF: Rs 610 bn │ CIT: Rs 333 bn │ SSF: growing │ Beema: Rs 30+ bn │
│  Combined: ~Rs 1+ trillion of patient capital                      │
│                                                                    │
│  TIER 2 — STATE-SPONSORED DEVELOPMENT FINANCE INSTITUTIONS         │
│  HIDCL (hydro, Rs 8 bn paid-up, 820 MW) │ NIFRA (Rs 25.8 bn book) │
│                                                                    │
│  TIER 3 — PE/VC & SPECIALIZED INVESTMENT FUNDS                     │
│  NPEA: USD 64 M deployed 2024, USD 165 M cumulative 2012–2024      │
│  Dolma Fund USD 108 M │ Business Oxygen │ Global Equity │ Cweda    │
│                                                                    │
│  TIER 4 — MUTUAL FUNDS (RETAIL CAPITAL MARKET)                     │
│  56 funds, Rs 61 bn AUM, regulated by SEBON                        │
│                                                                    │
│  TIER 5 — FOREIGN DIRECT INVESTMENT                                │
│  Stock: Rs 333 bn │ Top: India, China, Singapore, Ireland, Korea   │
│  Arun-III $1.4 bn │ Upper Trishuli-1 $453 M                        │
│                                                                    │
│  TIER 6 — DIASPORA CAPITAL                                         │
│  NRN/NDF: Rs 10 bn paid-up; NRN-only IPO up to Rs 8.5 bn           │
└────────────────────────────────────────────────────────────────────┘

Tier 1 — State Institutional Capital

This is the heart of Nepal's investment ecosystem. State institutional capital is the largest, most patient pool — and the primary buyer of every significant Nepal IPO and government bond issuance.

Comparative Sizing

(Source: CIT AR 8182, Director's Report Section 2; Employees Provident Fund Nepal Wikipedia; Social Security Fund Nepal Wikipedia.)

Strategic Dynamics

EPF is the largest single pool at approximately twice CIT's size. It has pivoted toward infrastructure investment — hydropower projects and airports — with a stated goal of generating yields for its 600,000+ contributors. EPF paid 5.25% to contributors in FY 82/83 (4.25% interim + 1% terminal). Proposed 2025 amendments to the EPF Act would modernize governance and may unlock additional asset classes.

CIT is mature, slowing, and under structural competitive pressure. Returns paid to participants in its flagship ESGRS scheme fell from 7.0% to 5.0% in FY 81/82; Gratuity and Investor's Account scheme returns were halved from 6.5% to 3.0%. At the same time, EPF still pays 5.25%. This spread creates a participant defection trigger. (Source: CIT AR 8182, "5-Year Key Financial Highlights," p. 169.)

SSF is the policy-favored new pension vehicle. Its combined employer-employee contribution rate of 31% is structurally higher than CIT's schemes. As government policy mandates SSF participation for private-sector workers, SSF will be the primary growth pool while CIT manages its existing book. (Source: Social Security Fund Nepal Wikipedia; CIT AR 8182, Director's Report Section 9.)

Rastriya Beema is the state life insurer and the single largest CIT shareholder at 31.55%. This cross-shareholding locks CIT firmly within the state-aligned institutional bloc and provides a structural floor to CIT's listed equity price. (Source: CIT AR 8182, Compliance Report p. 15.)

Why Tier 1 Matters for NEPSE

Tier 1 entities are the largest institutional buyers of NEPSE-listed securities. They allocate to IPOs (typically 25–50% of any institutional tranche), buy government bonds and T-bills at primary auctions, and hold meaningful stakes in major financial institutions.

The critical FY 82/83 rotation pattern (based on CIT data, illustrative of the broader trend):

(Source: CIT Q1, Q2, Q3 FY 82/83 Unaudited Financial Reports.)

When Tier 1 pools rotate — as they are doing now — it moves institutional liquidity materially. Banks lose a portion of their largest depositors' incremental flows; the government refinances its deficit at cheaper rates. If extrapolated across the full Tier 1 ecosystem, this implies Rs 50–100 billion of institutional capital rotating from bank deposits into government securities in the current fiscal year.

Tier 2 — Development Finance Institutions

HIDCL — Hydroelectricity Investment and Development Company

HIDCL was incorporated in 2011 as a government-sponsored development finance institution under Nepal Companies Act 2063 and recognised as a financial institution by NRB. It received lead-financier designation for priority hydropower projects in Mangsir 2078. (Source: HIDCL Annual Report FY 2081/82, Note 1.1 corporate timeline.)

Capital structure: Rs 50 bn authorized; Rs 10 bn issued; Rs 8 bn paid-up. Zero external borrowings — the company is entirely equity funded. (Source: HIDCL AR 8182, Balance Sheet.)

Portfolio: 14 hydropower projects with approximately 820 MW of committed capacity, representing roughly 25% of Nepal's national installed capacity. Total cumulative investment commitment: Rs 6,164 crore across 4,210 MW. (Source: HIDCL AR 8182, cumulative investment chart.)

The structural problem: Of Rs 6,164 crore committed across 4,210 MW, actual deployed capital (loans + equity) is approximately Rs 1,116 crore. The balance — roughly Rs 5,000 crore — sits in bank fixed deposits earning 7–8%, while project loans yield 10–12%. This FD dependency has been flagged by auditors for four consecutive years. (Source: HIDCL AR 7879, Auditor Report "Emphasis of Matter — Investment in Fixed Deposit" p. 28; AR 7980, AR 8081, AR 8182 Auditor Reports.)

FY 81/82 results: PAT Rs 93.43 crore, down 35.7% from Rs 145.26 crore in FY 80/81; EPS Rs 3.84 vs Rs 6.40 prior year; ROE approximately 3.4%. Q3 FY 82/83 annualized EPS has declined further to Rs 2.93. (Source: HIDCL AR 8182, Income Statement; Merolagani, May 2026.)

Ownership: GoN and state institutions collectively hold approximately 79.68% (promoter block). General public: 20.32%. (Source: HIDCL AR 8182, share structure.)

NEPSE listing: Yes (HIDCL ordinary shares; HIDCLP promoter shares).

NIFRA — Nepal Infrastructure Bank

NIFRA is Nepal's only NRB-licensed Class A national-level infrastructure development bank, established under BAFIA 2073. It commenced operations in March 2019. Unlike HIDCL, NIFRA lends across multiple infrastructure sectors: energy (hydro, solar), transportation, hospitals, tourism, and industrial infrastructure in special economic zones. (Source: NIFRA Annual Report FY 2081/82, Note 1.)

Loan book: Rs 25.61 billion (FY 81/82), with effectively zero NPL — Rs 18.74 lakh (0.009%) as at FY 80/81 year-end. (Source: NIFRA AR 80/81, AR 81/82.)

Capital structure: Rs 21.6 billion paid-up capital; no external debt as at FY 77/78 through FY 80/81 (FY 81/82 saw first debenture issuance and deposit mobilisation). CAR approximately 71–72% — far above the NRB minimum of 11%. (Source: NIFRA Q3 FY 82/83 quarterly report.)

Green bond: NIFRA issued Nepal's first publicly offered green bond in Jestha 2082 (June 2025) — the "6% NIFRA Harit Urja Debenture 2088/89" — raising Rs 5 billion. The public tranche was 3.8x oversubscribed. The bond framework was rated "Excellent" by Sustainable Fitch. (Source: GGGI press release; Sharesansar, June 2025.)

Dividend: 6.32% cash only in FY 81/82 (no bonus shares) — a capital discipline signal. (Source: NIFRA AR 81/82, NRB letter on dividend approval.)

NEPSE listing: Yes (NIFRA).

The Potential HIDCL–NIFRA Merger

NRB's monetary policy framework for FY 2078/79 first raised the prospect of merging HIDCL and NIFRA into a single infrastructure finance institution. As of the evidence available in the FY 81/82 annual reports of both institutions, neither mentions an active merger process. The FY 81/82 NIFRA annual report contains no reference to merger activity. (Source: NIFRA AR 81/82; HIDCL AR 8182. Merger background: Fiscal Nepal, August 2022.) A merger remains a potential catalyst to monitor, but its timeline and terms are not established.

Tier 3 — Private Equity, Venture Capital, and SIFs

Sector Aggregates

• 2024 NPEA member deployment: USD 64 million (~Rs 8.5 billion)
• Cumulative 2012–2024: USD 165 million (~Rs 22 billion)
• 2024 alone represented 37% of all-time deployment — an inflection year
• Active funds in 2024: 9, including 3 first-time deployers
• NPEA membership: 18 regular + 7 associate members

(Source: Nepal Private Equity Association (NPEA) website; Market Intelligence Report 2025, Invest for Impact Nepal.)

Key Players

(Source: NPEA Market Intelligence Report 2025; Dolma Impact website; Trekking for Alpha Nepal PE Report.)

The 2025 FITTA Regulatory Unlock

The 2025 Foreign Investment and Technology Transfer Act (FITTA) Ordinance amended Nepal's foreign investment framework to allow foreign investors to invest in Nepali companies through SIFs and VC funds registered with SEBON. (Source: Pradhan Law, "Act to Amend Some Nepal Acts Relating to Improving Economic and Business Environment," 2025.)

This is the single most important regulatory development for Nepal capital markets in 2025. It converts USD-denominated risk capital into Nepali SIF positions, enabling institutional foreign capital to reach private Nepali growth companies for the first time through a structured channel. Watch for: which SIFs raise USD-denominated funds first; sectors that receive foreign capital earliest (hospitality, healthcare, fintech are most likely); and how increased SIF activity affects secondary market liquidity on NEPSE.

Institutional constraint: CIT and EPF currently cannot invest in SIFs or PE at scale — their Investment Policies do not permit it. CIT has proposed a CIT Act amendment that would enable PE/SIF investment. (Source: CIT AR 8182, Director's Report Section 9.)

Tier 4 — Mutual Funds

Aggregates

• 56 funds (41 closed-end, 12 open-end, 3 in transition)
• Rs 61+ billion AUM
• Regulator: SEBON under Mutual Fund Regulation 2067

(Source: SEBON published data; CIT AR 8182, Director's Report.)

Major AMCs (all bank-sponsored)

Nabil Investment Banking (Nabil Bank), Siddhartha Capital (Siddhartha Bank), NMB Capital (NMB Bank), NIC Asia Capital (NIC Asia Bank), NIBL Ace Capital (Nepal Investment Bank), and others including Global IME Capital, Sanima Capital, Laxmi Capital, Prabhu Capital, Civil Capital.

CIT's subsidiary Citizen Stock Dealer Limited (CSDL) has proposed launching a closed-end mutual fund to SEBON. If approved, this opens a new fee revenue line for CIT — small in scale but strategically significant for its capital market positioning. (Source: CIT AR 8182, Director's Report Section 4.)

Tier 5 — Foreign Direct Investment

Stock Position (mid-2024)

• Total FDI stock: Rs 333 billion
• Services sector: 40.5%
• Industry/Manufacturing: approximately 29% each
• Source countries: approximately 60; top 5 are India, China, Singapore, Ireland, South Korea

(Source: CIT AR 8182, Director's Report Section 2, cross-verified to NRB published data.)

Recent Flows and Landmark Projects

FY 24/25 commitments were led by China (44.77%) and India (19.55%), though the realized stock remains India-dominated. Two landmark projects define the scale of what is possible:

• Arun-III (900 MW): India's SJVN invested $1.4 billion; when operational this project will make Nepal a net power exporter
• Upper Trishuli-1 (216 MW): Financed with IFC's $453 million investment

(Source: CIT AR 8182, Director's Report; secondary sources on Arun-III and Upper Trishuli.)

Why FDI Matters for Domestic Investors

FDI directly funds projects that generate dividends and tax revenue for Nepal. Major FDI projects often have local equity participation through HIDCL, NIFRA, or sometimes CIT. The 2025 FITTA Ordinance enables foreign indirect investment via SIFs — bringing institutional foreign capital to Nepali growth companies.

Tier 6 — Diaspora Capital

NRN Development Fund

• Paid-up capital: Rs 10 billion (launched 2024)
• GoN holding: 5%
• Public IPO (NRN-only): Up to Rs 8.5 billion (85%) eligible for diaspora investors
• Lock-in: 1 year; tradeable among Non-Resident Nepalis only
• Website: nepaldevelopmentfund.com

(Source: Nepal Development Fund website; NRNA website.)

The NDF represents a structural attempt to channel remittance capital — which amounts to 28.2% of Nepal's GDP — into productive long-term investment rather than consumption. SEBON-authorized "joint investment companies" can also issue NRN-targeted IPOs under existing regulations.

Regulatory Architecture

Macro Context — FY 81/82 and FY 82/83

(Source: CIT AR 8182, Director's Report Section 2, cross-verified to NRB and SEBON published data.)

Three Structural Themes

Theme 1 — Yield Compression in the BFI Sector

Commercial bank weighted average deposit rate fell 158 basis points in one year. Credit rate fell 208 bps. This is a major repricing event. Institutional depositors — CIT, EPF, mutual funds — are the immediate losers as their reinvestment yield collapsed. Banks benefit from cheaper funding in the short term, but NIM is structurally narrowing as credit rates fall faster than deposit rates.

Theme 2 — NEPSE Liquidity Rally

NEPSE gained 24.7% and market capitalization grew 31% in FY 81/82. Market cap to GDP reached 72.25% — historically elevated. The rally is partly driven by excess BFI liquidity rotating from FDs into equities as banks search for yield, and by bond yields falling making equities relatively attractive. Private credit growth of only 8.4% (well below the historical 15–18% target) suggests the rally is liquidity-driven rather than fundamentals-driven.

Theme 3 — Asset Quality Deterioration

BFI NPL rose 102 basis points (3.6% to 4.62%) in one year. This is a leading indicator of stress in the real economy — existing borrowers are under pressure and new credit demand is weak. If the NPL cycle worsens, it could unwind the liquidity-driven NEPSE rally by forcing banks to pull back from secondary market activity.

Cross-Tier Capital Flow Map

                    ┌─────────────────────────┐
                    │  Nepali Worker / Saver  │
                    └────────────┬────────────┘
                                 │
                                 │ contributions, savings
                                 ▼
      ┌────────────────────────────────────────────────────┐
      │  Tier 1 — State Pension/Trust Pools (Rs 1+ trn)   │
      │  EPF │ CIT │ SSF │ Rastriya Beema                  │
      └────┬───────────┬──────────────────┬───────────────┘
           │           │                  │
   FDs in  │  Bonds &  │  Member loans    │  Equities &
   Banks   │  T-Bills  │  (sapati)        │  Subsidiary
           │           │                  │
           ▼           ▼                  ▼
     ┌─────────┐  ┌─────────┐       ┌─────────────────┐
     │ Class A │  │ GoN     │       │  NEPSE          │
     │ Banks   │  │ Treasury│       │  Listed         │
     │ (NIM)   │  │ (Debt)  │       │  Securities     │
     └─────────┘  └─────────┘       └─────────────────┘
           │           │                    │
           ▼           ▼                    ▼
      Lending      Fiscal               Returns to
      to private   spending             pension pools
      sector       capacity             & subscribers
           │                                │
           ▼                                ▼
      ┌─────────────┐                ┌─────────────┐
      │ Tier 2 DFIs │                │ Tier 3 PE   │
      │ HIDCL NIFRA │◀──co-fund─────│ NPEA funds  │
      └─────────────┘                └─────────────┘
           │                                │
           │ project loans/equity           │ private growth equity
           ▼                                ▼
      ┌──────────────────────────────────────────┐
      │  Real Economy: Hydropower, Hospitals,    │
      │  Tourism, SMEs, NEPSE-listed companies   │
      └──────────────────────────────────────────┘

Key Flow Observations

1. Tier 1 pools are the primary intermediary — they take saver money and deploy across BFI deposits, government debt, equities, and project loans
2. As Tier 1 rotates from FDs into govt securities (the current trend), banks lose deposits and the government refinances cheaper
3. Banks then ration credit to the private sector — already visible in 8.4% credit growth vs the 15–18% historical target
4. NEPSE-listed companies become more dependent on equity issuance versus bank credit
5. PE/VC funds fill the gap at the smaller and growth-stage end — but USD 64 million is still tiny relative to the credit gap
6. The 2025 FITTA ordinance enabling foreign capital via SIFs could materially increase Tier 3 inflows and create a new source of growth-stage funding

Key Catalysts to Monitor

Sector-Wide Risks

1. Sovereign credit event. Nepal's debt-to-GDP is rising. A fiscal stress scenario would reprice government bonds and T-bills and create mark-to-market losses across all Tier 1 pools now rotating heavily into government securities.

2. Banking sector NPL crisis. Current NPL at 4.62% and rising. If a major BFI fails, contagion could affect Tier 1 pools' fixed deposit exposures — CIT alone has Rs 13,436 crore in bank FDs as at Q3 FY 82/83.

3. NEPSE correction. Market cap to GDP at 72.25% is historically elevated. A 30–40% correction is plausible if the current liquidity-driven rally reverses as deposit rates stabilize or credit demand recovers.

4. Hydropower oversupply. Nepal's installed capacity is growing rapidly. If export markets to India and Bangladesh do not materialize at scale, the revenue assumptions for hydro DFI loan portfolios could prove optimistic.

5. Foreign capital flight. The 2025 FITTA ordinance brings foreign capital in through SIFs — but capital that enters through SIFs can also exit. If global risk-off conditions develop, FDI and SIF capital could withdraw faster than it arrived.

Information Gaps

The following material questions are not answerable from publicly available sources:

1. EPF's full investment portfolio breakdown. EPF's total AUM of ~Rs 610 billion is confirmed; the asset-class breakdown (FDs vs equities vs bonds vs infrastructure) is not publicly disclosed at granular level.

2. SSF's total AUM. SSF reports contributor numbers (approximately 1 million registered) but does not publish asset-class or AUM disclosures comparable to CIT's annual reports.

3. Detailed capital deployment schedules for HIDCL's four largest projects (Upper Arun 1,063 MW, Upper Tamor 285 MW, Jagdulla 106 MW, Jum Khola 56 MW) — the projects with largest committed but undisbursed capital.

4. Quantitative foreign investment flows into SIFs following the 2025 FITTA Ordinance — this data will only emerge as NPEA and SEBON publish updated deployment figures.

5. CIT Act amendment timeline. The Ministry of Finance has received the proposal; no parliamentary timeline has been publicly stated.

References and Sources

1. CIT 31st Annual Report FY 2081/82, Citizen Investment Trust. Director's Report Sections 1–10; 5-Year Key Financial Highlights p. 169; OAG Audit Report pp. 29–34. Primary source.

2. CIT Q1, Q2, Q3 FY 82/83 Unaudited Quarterly Financial Reports, Citizen Investment Trust. Primary source (unaudited).

3. HIDCL Annual Report FY 2081/82 (14th AR), HIDCL. Note 1.1 corporate timeline; Balance Sheet; Income Statement; Auditor Report. Primary source.

4. NIFRA Annual Report FY 2081/82, Nepal Infrastructure Bank Limited. Balance Sheet; Board Report; project portfolio. Primary source.

5. Employees Provident Fund Nepal — Wikipedia. AUM and contributor figures. Secondary source.

6. Social Security Fund Nepal — Wikipedia. Contributor counts and scheme structure. Secondary source.

7. NPEA Market Intelligence Report 2025, Nepal Private Equity Association / Invest for Impact Nepal. investforimpactnepal.com. PE/VC deployment data. Secondary source.

8. Trekking for Alpha — Nepal Private Equity, trekkingforalpha.com. Sector narrative context. Secondary source.

9. Dolma Fund Management, dolmaimpact.com. Fund size and sector focus. Secondary source.

10. Nepal Development Fund, nepaldevelopmentfund.com. NDF paid-up capital and structure. Secondary source.

11. Pradhan Law — 2025 FITTA Ordinance, pradhanlaw.com. Foreign investment via SIFs regulatory basis. Secondary source.

12. SEBON Official, sebon.gov.np. Mutual fund regulation framework. Primary source.

13. NRB Official, nrb.org.np. Monetary policy; BFI deposit and credit rate data. Primary source.

14. Fiscal Nepal — HIDCL-NIFRA merger background, fiscalnepal.com. August 2022 merger context. Secondary source.

Report compiled: May 31, 2026.