High inflation hurts earning/ savings power of people

With inflation rising rapidly over the past few months, the earning and savings power of the people has eroded, according to the President of the Unit Trust Association (UTA) of Sri Lanka.

S. Jayavarman made these comments at the signing of the Memorandum of Understanding (MOU) between the UTA and the Securities and Exchange Commission (SEC) earlier this week.

The MoU was on awareness raising and market development for the Unit Trust Industry. Jayavarman said the industry was looking forward to better development in the coming years which would enable people to invest their savings in different funds which are suitable for their needs.

Unit Trusts, more commonly known as mutual funds, were introduced to Sri Lanka as an investment option in 1991. There are currently 13 investment schemes which provide access to professional fund management skills to the small investor with the aim of giving a better return. As it stands now, the total assets in the unit trust industry total just over Rs.5.2 billion.

SEC Director General, Channa De Silva said it realised the value and potential of the UTA which is why the SEC made an initial 'groundbreaking commitment' of a Rs.13 million grant. This is done with the hope that the UTA would turn all Sri Lankans into savvy investors which is expected to have a significant economic bearing.

Jayavarman said it aims to improve public awareness in Sri Lanka because 'awareness among ordinary people is not sufficient.' The general public does not know the benefits they can get from investing in unit trusts. Furthermore, Jayavarman said people should not automatically assume their money will be invested in equities because there are other funds (income, money market) that can yield an even better return.

A detailed proposal has been drawn up on how the Rs.13 million will be utilized. Jayavarman said it is essential to share knowledge with potential investors and in that regard, focus group promotions and town promotions will be held not only in the western province but in other areas as well.

Vice President of the UTA Gihan Rajapakse said this is the first time the SEC has played a development role in the capital market and the UTA plans on responding positively. He said 'an old age crisis is looming' and diversified investments are the key to the future.

In order to invest, potential investors will have put up an initial Rs.5000 and can continue to invest with a minimum of Rs.1000. There is no time period and investors can switch between the various funds. Over the past five years, equity based funds show an annual average compound return of approximately 20%. This exceeds the 12 month Treasury Bill rate by approximately 10%. Income funds which include investments in the money market and gilt edged securities, shown as average return of approximately 8.5%. Despite the impressive performances of the funds, over the past 16 years, the industry has only attracted around 25,000 unit holders, a number which has slightly declined. (NG)