SEC goes for indices based derivatives

Cash based settlement system:

The Securities and Exchange Commission (SEC) of Sri Lanka will implement index or indices based derivatives shortly.

Director General SEC Channa De Silva said that it will be a cash based settlement system.

SEC is also exploring the possibility of installing a surveillance system.

We will get down representatives of a firm specialising in electronic filing initially to instal the system at the CSE and the Unit Trusts and then to the listed companies as well. This will address issues such as speed, efficiency and minimise mistakes as well.

We are also looking at listing 5-10 new companies in the CSE said de Silva. The Securities and Exchange Commission of Sri Lanka and the Unit Trust Industry signed a Memorandum of Understanding last week to develop the Unit Trust Industry.

The SEC is committed to implementing the plan and has offered the industry financial support to launch an awareness and marketing effort to help the ordinary people to learn more about saving money in Unit Trust schemes and to effectively invest their money after evaluating their choices and options.

The Director General of the SEC said that under this scheme the SEC will provide a grant of Rs. 13 million to the Unit Trust Industry to launch an awareness and marketing campaign.

Our target is to attract many people to use unit trust products to save money and benefit from the superior returns offered.

President, Unit Trust Industry S. Jeyawarman said that they will take steps to create awareness, knowledge building and support their investment decisions with the long term interest of the potential investor.

We expect the unit holder base to increase gradually and are confident that if there is consistency in the promotion the momentum could build.

He said that mutual funds are very popular in other countries and an accepted way of saving for the future.

One in three Americans participates in a fund. In India, it is growing in popularity - 36 management companies with over 1,000 funds and over Indian Rs. 32.6 trillion as at March 31, 2007 under management.

Jeyawarman said that the SEC in its Capital Market Development plan envisages creating a vibrant capital market with greater participation from local investors including the rural population. Mutual funds are seen as a big player in supporting this aspect.

As this develops, we, like India could see industry growth with more asset management companies and more schemes, offering more options for the investor.

He said they plan to publish a multilingual promotional booklet to help people understand the concept better.

The promotional plans include conducting town promotions, focus group presentations, and media publicity through write ups, press interviews and talk shows. Product advertisements, publishing of daily prices and monthly statistics on performance will also help the public build a better understanding of the products.

We believe the participation of more individuals in the capital market will drive development and we need to create awareness of mutual funds to facilitate it.

Unit Trusts better known as mutual funds was first introduced to Sri Lankans as an investment option in 1991. Today, after 16 years the unit trust industry has developed 13 investment schemes which gives access to professional fund management skills to the small investor with the aim of giving a better return.

Equity based funds show an annual average compound return of approximately 20%. This return exceeds the 12 month Treasury Bill rate by approximately 10%. They offer a real return above the annual inflation of approximately 10%.

Income funds (investments in money market and gilt edged securities) show an average return of approximately 8.5%.

Despite the impressive performances of the funds, the industry over the 16 years has only attracted approximately 25,000 unit holders. This number has not grown; in fact it has declined slightly.

Most people save with banks in savings and fixed deposits. Investors do not realise that the value of their money is eroding sharply with higher inflation in the economy. With this their purchasing power reduces and it is difficult to achieve their dreams of educating their children or maintain their living standards when they are old.

To balance this effect people need to invest in shares of well managed growth companies and high yielding corporate securities giving returns more than the traditional deposits.

This can be done through unit trusts which offers the small investor a fund manager who can help him select a basket of stocks that can provide an above average return for as little as Rs. 1,000 or Rs. 10,000.