Saver to Investor: A Sri Lankan perspective

From Saver to Investor: A Sri Lankan perspective

Christine Dias Bandaranaike, CFA Charterholder since 1999, brings over 15 years of experience in both locally and internationally. As the current President of UTASL, she has been at the forefront of a remarkable transformation in Sri Lanka’s unit trust industry.

In the early 1990, my mother, then a young widow, took a bold step. She sent me, her only child, to university overseas. When questioned about how she funded my undergraduate education, she revealed that she had done so without taking bank loans.

Instead, with remarkable foresight, through a combination of prioritizing shrewd saving and compounding interest, she was able to use her main source of income (rental income) to cover the full cost of tuition and living expenses. By the end of the period, her savings were depleted entirely. However, given the high levels of interest rates in Sri Lanka during the 1990s, together with resets of rent, she was, with time, able to restore her savings to a comfortable level, enabling her to face retirement cheerfully. I admire my mother’s financial acumen, which perhaps influenced my career choice and desire to help others succeed financially.

However, we now live in a different era of interest rates. Widows of the 2020s would struggle to replicate this path. The early 2020s saw skyrocketing inflation and severe erosion of purchasing power, in addition to currency depreciation. Those on a fixed income, such as pensioners, were the hardest hit.

However, since the implementation of the 2023 Central Bank Act, we have seen inflation in Sri Lanka become more stable and predictable. The byproduct of this change is that Sri Lanka, traditionally a nation of savers, will instead transition into a nation of investors and spenders. The booming stock market of late 2024 and 2025, fueled by lower interest rates, is evidence of this shift. Today, young investors are no longer content to only look at fixed deposits and are actively looking to educate themselves on alternative investment opportunities. Sri Lankans are becoming more conscious of the after-tax return of fixed deposits, a realisation they didn’t need to have ten years ago.

The Role of Unit Trusts

The unit trust industry is witnessing the start of this shift. Over the past five years, the number of unit trust investors in Sri Lanka has more than doubled. Assets under management have grown by 172% from 2020 to the end of 2024. The public is gradually coming to realise that the old model of being rewarded for being a passive earner of interest income is no longer working. It is essential to move forward from being a saver to being an investor. To do so, prudent savings habits and education on the financial risks of capital market products are critical.

Why unit trusts?

Today, the demands of life are such that most people put off investing simply because it seems complicated and they don’t feel they have sufficient time to understand properly. Hesitation to act is a normal human instinct. However, the real risk is if the investment decision is never made.

Unit trusts allow savers and investors to simplify. Unit trust investing is accessible to all.

1. Many unit trusts allow starting with as little as Rs. 10,000.

2. Investments within the trust are spread across different investments, providing diversification and reducing the risk of any single loss or default.

3. Licensed professionals make decisions on behalf of investors, using research and market expertise.

4. Many unit trusts are liquid, allowing withdrawal without penalty within a few days.

5. All unit trusts are regulated by the Securities and Exchange Commission of Sri Lanka (the SEC) and are operated through a trustee who monitors day-to-day investment activities against the trust deed.

6. A custodian receives all inflows from unit holders and holds them in the name of the unit trust, separate from the management company.

In short, low barriers to entry, high flexibility, and professional management are some of the best reasons to use unit trusts to start your journey into investing.

How to choose the right fund.

The Unit Trust Association recommends looking at five things:

1. Your risk tolerance – how much ups (or downs) can you accept?

2. Your time horizon – when will you need to access this money?

3. Past performance – look at trends over the past five years, not just the latest returns.

4. Cost structure – know the fees you will pay on a unit trust.

5. Credibility – learn a little bit about the background and strategy of the management company

Time to act

● If you are already a disciplined saver, you have already done the most challenging part. Now, take the next step.

● Start small. Start now. Let your money work for you.

● Investing isn’t speculation. It’s a plan – a way to turn the same rupees you have been protecting into something bigger.

● In today’s Sri Lanka, saving alone will keep you safe.

● Investing will help you move forward.