The power of choice and a flexible portfolio mix are two unique selling points which will launch the new Eagle Mutual Funds into the market next week. For the first time in the short history of mutual funds, two of the funds will invest entirely in government securities and corporate debt.
The funds will steer away from offering tax benefits as a selling point and give the investor long term capital growth with the option of investing in an entire range of investments, the Fund's General Manager, Mr. Manjula Silva said at a pre-launch presentation last week.
"This is a tool for financial planning and the ability to split your money proportionately and have the option of changing you mix is unique to the product," he added.
The Gilt Edged Fund, Income Fund and Growth Fund will be simultaneously launched on November 27.
Fund Managers, Eagle NDB Fund Management Company has jointly committed Rs. 100 million to the fund to give it initial stability. Fund managers said at the presentation that their investment will remain in the fund.
Initial investments have to be in a minimum of Rs. 5000/- but no front end fee will be charged.
The low risk low return Gilt Edged Fund will invest only in government backed securities like treasury bills, bonds or repurchase agreements. Investments in bank fixed deposits are also permitted.
The Income Fund will invest in short end debt securities like commercial paper and long end securities like debentures and asset backed securities, de Silva said. The instruments will carry an element of default risk which the fund managers have to minimise with prudent investments.
The Growth Fund will invest only in blue chip quoted shares with high market capitalisation, he added.
Units are instantly redeemable and the Fund is bound by the trust deed to buy back units. An exit fee of 1 per cent will be charged on the Gilt and Income Funds only in the initial year of operation to lend stability to the fund, while exit fees for the Growth Fund will be charged on a reducing rate of 3%, 2% and 1% respectively in the first three years of operation.
A liquidity level of 10% of total value of the fund has to be maintained in cash or near cash form at all times on all three funds.
A switch in investment will be treated as a redemption, with a switching fee of 50% of the relevant exit fee being charged in the first year of operation only. This is to give stability to the fund and play fair by the investors who remain with the fund, the managers said.
A management fee of 2% per annum will be charged from the Gilt Fund and 2.5% per annum from the two other funds.
The Gilt Edged and Income Funds plan to declare annual dividends and the investor has the choice of reinvesting the dividend payments into the fund. The Growth Fund which takes a longer term view will not initially declare dividends, de Silva said.
Units can be used as collateral for bank loans. Joint applications, investing in minors names and conditional joint holdings are accepted.
The Fund's distribution network will be another strong point Eagle, NDB's Managing Director, Mr. Chandra Jayaratne said. The Fund will use its trustee Bank of Ceylon's network together with CTC Eagle's 1000 strong insurance agents and their branch network to sell the products, he said.
The company will also fund a capital market research unit to be set up within Securities and Exchange Commission, he added.
With the three new unit trusts, the Eagle NDB fund becomes the largest fund with a existing portfolio of Rs. 51/2 billion under its management.
The fund also now manages the Pyramid Unit Trust earlier managed by CKN Fund Management Company. CKN Fund Management Company jointly owned by NDB, John Keells, Central Finance, and foreign partners the IFC and Templeton, changed its structure when NDB bought over John Keells and Central Finance share holding of the company.
Meanwhile CTC Eagle Fund, managed by CTC Eagle Fund Management Company had a Rs. 31/2 million fund under its management.
When the two companies merged this October, the Eagle Mutual Funds managed by the Eagle NDB Fund Management Company became the largest fund in Sri Lanka. The three new funds will add to their size in a comparatively new mutual fund market with about nine players investing mostly in equity based securities.
The discount on cooking gas, announced in the Budget was intended to relieve the consumer.
But there were some indications that this may not happen, with some people even consulting legal opinion.
But the professor has now made the government's intentions clear. The price reduction will have to trickle down, if the monoply status is to remain.
Once little Lanka became the champs in wielding the willow, sponsors were falling over each other to patronise them.
But now, it is different story.
Ever since the bribery allegations hit the headlines even the once loyal sponsors are now fighting shy to cough up the money, fearing they too will be dragged into a scandal.
At least one tour in 1998 is in jeopardy because of this, they say.....
More about reduced duties in the Budget.
Gold prices in Sea Street have fallen about twelve percent since the announcement but gold trade experts say the market has not hit the bottom yet.
They expect a fifteen to eighteen percent decline by the end of the year.
There is some anxiety about the reper cussions of the exchange devaluations in certain South East Asian countries on the Sri Lankan economy. Will the devaluation affect our competitiveness in trade? Will it affect our capacity to attract foreign investment adversely? Should Sri Lanka too devalue our currency to remain competitive? These are the questions posed by many businessmen and concerned citizens.
Most businessmen appear to favour a devaluation. They believe that otherwise the country's goods would not be competitive with those of other Asian countries. Some analysts even believe that a devaluation would be inevitable. The speculation that the currency would be depreciated appreciably itself exerts an unhealthy influence on our balance of payments, despite the restrictions on capital transfers.
The Central Bank and the government are of the view that the developments in the South East Asian countries are not of much relevance to Sri Lanka and that a devaluation is not in the offing.
The Central Bank argues that there is no need for a depreciation of the currency. The case rests on the fact that the country's foreign exchange reserves are quite adequate. At the end of August the reserves were U.S. $ 2,771 million, adequate to finance 5-6 months of imports.
The external assets had increased in the months up to August owing to the balance of payments registering a surplus of U.S. $ 375 million during the first eight months of this year. According to the Central Bank this surplus is attributed to the privatisation proceeds of U.S. $298 million, increased other capital flows including the U.S. $50 million from the Floating Rate Notes issued by the government, increased private transfers and higher earnings from tourism.
It is further argued that since capital transfers or the capital account has not been liberalised, there is no fear of large capital transfers.
It is not our intent to argue that our currency should be devalued or not. We recognise it is a complex issue requiring careful observation, analysis and judgment. It is a task best left to the experts. Yet that decision must not be clouded by bias and prejudices. It must be guided solely by hard economic facts and economic reasoning. We would like to point out a few of these considerations.
The devaluation of South East Asian currencies would change the relative costs of production between these countries and ours. If this were to happen we may lose some of our export competitiveness. It would especially affect our export growth. Foreigners would find investment in the devalued countries more attractive as their dollars would be worth more.
In other words, capital investment in South East Asian countries would cost about a third less now than before. The devaluation also means that investors from Asian countries would find investing in Sri Lanka more costly than before. This would be a significant development as Asian investments were beginning to increase recently. There may be a set-back to this trend.
All these factors imply that our balance of payments could be adversely affected. It is the responsibilty of our policy makers to weigh these factors carefully in order to decide what we should do with respect to our currency.
It has been contended that the Asian countries which have devalued will have a higher rate of inflation and higher interest rates and hence their costs would rise. Even if this were to happen ultimately, it must be accepted that immediately, and for some time they would have a cost advantage. If it were not so, the entire logic and rationale for devaluation would be hollow.
There are some factors which lessen the case for devaluation. Our exports - especially our industrial exports - have a high import content. Hence a devaluation would increase production costs through higher cost imported inputs.
A devaluation would also increase the cost of living appreciably especially of the working classes. This could lead to demands for increased wages on the one hand and social dissatisfaction and misery to the poorer sections on the other.
A government cannot ignore this aspect as well.
There is one argument against devaluation which we cannot accept. The notion that adequate reserves make it unnecessary to devalue is based on a poor understanding of the issues. The high reserves have come about owing to borrowings and capital inflows.
The external assets of the country have a large component of contingent liabilities and are also the result of a sale of assets, and not due to a fundamental strength in our trade account. The trade deficit is continuing to widen owing to imports increasing more than exports.
A depreciation of the currency would tend to restrict imports and increase exports and hence reduce the trade deficit. This is especially so in the context of the devaluation of competitor currencies. We must not lose sight of this basic fact.
We have pointed out some of the pros and cons for devaluating our currency in the context of the large devaluations in other Asian countries. The decision on this issue cannot be made lightly.
The facts and emerging conditions must be examined carefully and a decision which consolidates our balance of payments position should be taken.
Continue to Business page 3 * Asian focus on investor relations * Textiles: a look at duty-free scenario
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