Total assets under management in Sri Lanka's unit trusts, both open ended and close ended funds, encompass Rs. 22 billion; according to S. Jeyavarman, the President of the Unit Trust Association of Sri Lanka and the Chief Executive of National Asset Management.
Unit trusts are collective investments in a diversified portfolio of financial instruments, including shares, etc., similar to mutual funds, but where investors buy units in the trust. However, these are not as actively managed as mutual fund where fund managers buy shares, etc. Instead, the unit fund is more a trust with a set of existing assets, where units are bought and sold at prevailing market prices.
He further adds, in a statement to the Business Times, that these benefit the economy and the country because of their use "in capital market thus facilitating long term finance to corporate sector in the form of equity and fixed income capital." And that "it is important to note that the peoples’ savings are invested in long term assets vis a vis shares and create prospects for long term growth of capital. By creating retirement savings through prudent investments for retirement, the dependency on the state welfare budgets could be reduced while making people to save for retirement from early stages of their career."
Mr. Jeyavarman also opines that unit trusts should grow in "awareness among the common man so that all households in Sri Lanka should participate in the growth of the economy and the capital market." He also suggests that the industry is "looking forward for liberalisation of exchange controls for foreign individual and institutional investors to invest through the fund industry." Further, he identifes the need to provide "proper distribution channels for (people) to conveniently invest and withdraw as and when needed. The industry is looking forward to work with banking and the finance sector to partner and take the products through their net work of branches. It is also necessary to provide proper advice on investment choices that they can make. We are working with the Securities and Exchange Commission of Sri Lanka to make better awareness in this year through many initiatives."
According to Mr. Jeyavarman, unit trusts are a better option for the public than treasury bills and other financial instruments mainly because of the expertise of the unit trust fund managers, who "pick the right kind of securities with appropriate maturities for the investor in a unit trust. Alternatively, the investor himself can buy a particular security on his own initiatives. He needs to monitor treasury bill maturities and re-invest again and again in the long term. Similarly, if it is a share investment, he needs to understand the valuation and risk associated with such investments. The common investors neither have the time nor the knowledge to invest in these instruments. The unit trust provides the solution to achieve the needs of the investor while overcoming such constrains."
Additionally, contrasting unit trusts with investing directly in the shares; Mr. Jeyavarman notes that a "unit trust invests in both shares and other fixed income securities and there are specialised funds available to invest in both markets. The stock market is always volatile for many reasons. One has to understand those reasons and act accordingly to succeed in the share investment. However, the interest rate is moving down at this time and as a result equity and fixed income combination can give a better prospective return to all type of investors while their risk of investments are monitored. Investors who have not invested in shares may invest conveniently in shares through the unit trusts to gain in the medium to long term."
Further elaborating, he reveals; "We believe the investor need to buy shares regularly as market timing is a difficult exercise. When the stock market is down it so happens a majority of share prices goes down together. The investors need to approach their investments by regular saving schemes in the funds thus avoiding wrong market timing."
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