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| Sunday, 12 June 2005 |
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| News Business Features Editorial
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Unit Trusts can facilitate to build savings - Jeyavarman "Investors should be aware of the difference between a fixed return from a savings instrument and variable and market oriented return from an investment vehicle such as unit trust under the care of professional fund managers. The following is an interview with the President of the Unit Trust Association of Sri Lanka, S. Jeyavarman on the financial market and unit trusts. Question: The stock market in recent years gained quite significantly whereas the interest rates are moving down and remains at a low level. How does the Unit Trusts perform in this period? Answer: All Unit Trusts have done remarkably well in this period. The equity funds gained significantly beating returns from fixed income investments. The growth funds recorded an average of 21.21% per annum for the five-year period whereas the average fixed deposits, Treasury bills and savings accounts had given a return of 11.3%, 12.38% and 7.00% per annum during the same period. However, the income funds followed down trend in the interest rates. More frequent issues of securitised papers and other corporate papers although less developed also helped to generate above average returns. Q: In a falling interest rate scenario many people feel their income has fallen and do you consider Unit Trusts can offer a solution to this? A: Unit Trusts often target long-term savers who could benefit from equity type of investments and other long-term fixed income instruments. Hence, investors looking for growth in their savings while willing to tolerate short-term fluctuations in values may consider combining equity and income funds to counter the lower returns from pure short-term fixed income savings. The income funds would provide the dividend while the equity funds could achieve growth. It is, however, important that the investors consider their current and future income and growth needs before making such investments. Investors can consult Fund Managers about the suitability of their investments before making investments in Unit Trust Funds. Q: One would argue that investing money in a saving or fixed deposit is safe. Therefore why should one go for a unit trust to save money. A: Saving in a fixed deposit account is one way to earn a return. But investors should be aware of the difference between a fixed return from a saving and variable and market originated return from an investment vehicle such as Unit Trust, under the care of professional fund managers. It is important that any decision to invest money in any type of fixed term instrument is taken after considering the interest rate outlook. Interest rates can move on the opposite direction and cause notional loss to the investment. Similarly when investing in the stock market the market value can change after you invest the money. Unit Trusts generally enable the investor to get the market return as guided by the Managers who conduct research to pick the right investment for the fund within a changing market environment. Therefore Unit Trusts can offer a process of maximising return from market opportunities. Investors can plan their savings to meet urgent needs on a rainy day through the medium of unit trust vehicle. They can also set out monthly savings from their earnings to accumulate capital for their future needs. In the long term particularly on retirement from active work one needs more capital to generate adequate income with the increasing cost-of-living. Q: How safe unit are trusts. Some people think public money is given to the Managers and they can do anything with the money as they wish. A: Unit trusts have operated in this country for more than fourteen years, we do not have any instances where managers mishandled those funds. It is because there are many safeguards in the unit trusts. First and foremost investors money are held in a trust separated from the Managers and held under the custodianship of the trustee. Generally trustees in Sri Lanka are reputed banks. Secondly the trustee has the duty to supervise that the fund is administered according to the trust deed which is a legally binding document. In an extreme situation if the Manager is incompetent the trustee has the power to dismiss the manager. Thirdly, the unit trust is licensed by the Securities and Exchange Commission of Sri Lanka which ensures the trust is operated within the SEC law and unit trust code. All these safeguards provide safety to investors' money in the trust and free from any fraud or misappropriation or default. Q: In Sri Lanka the Unit Trust concept has not picked up well among people. How would you see the future of Unit Trusts. A: Investors need to be active in investing their money as the money value tends to fall faster with inflation. I am confident people will go for more investments where markets offer better return. I mean people should change their style of investments from the traditional passive form of savings where the returns are lower to a more active and market oriented investments. We are offering the market access effectively through the Unit Trust vehicle and we believe more people will take investment routes through Unit Trusts to make their investments, particularly to achieve their longer term investment needs. Q: What is your recommendation to people in Sri Lanka? A: It is important to move their money from traditional savings to more market oriented investments to face this challenging future with the increasing cost-of-living and falling money value. This will help to get their financial affairs in good shape with funds available to meet unforseen costs, to pay education fees, to reduce the mortgage or to support their retirement can increase their sense of security and freedom. |
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