All over the world, Unit Trusts/ Mutual Funds are the most popular method of investing in shares. Yet many Sri Lankans still don't understand what they are or how they work. Say you have Rs.10,000 to invest. On its own that may not buy very much, but pool it with Rs.10,000 each from lots of other people and you would create a Fund large enough to invest in shares or gilts on a powerful scale. Each investor would have a stake in the Fund and receive a proportion of its profits.
Basically that is how a unit trust works - it's a form of collective investment.With so many risky investment choices available to you today, We believe the more informed you are, the better your investment decisions will be.
Therefore we spoke to Mr. Kumudu Kekerideniya, Marketing Executive of Unit Trust Management Company to understand the risks and the rewards of investing in Ceybank Unit Trust Funds.
What is a Unit Trust Fund?
A Unit Trust Fund is a Trust which pools money from like-minded investors and invests in a diversified portfolio of securities.
There are various Schemes that address different needs of investors. The pool of money thus collected is then invested by the Asset Management Company (AMC) in different types of securities.
These could include shares, debentures, Treasury and Money Market instruments, based on the investment objective of a particular Scheme. Such objective is clearly laid down in the Prospectus of that Scheme.
The Fund generates the income for the investors by way of dividend, interest and capital gains. This is distributed to the Unit-holders in proportion to the number of units they own.
What is an Asset Management Company (AMC)?
The main responsibility of an AMC is to manage the Funds' investments according its objectives. It also is involved in the daily administration and selling units to investors and canceling units when investors divest them. An asset management company is promoted by a sponsor which usually is a reputed corporate entity with sound record of profits. An AMC typically has three departments:
Sales & Marketing
Operations & Accounting
Eg. Asset Management Company for Ceybank Unit Trust Funds is the Unit Trust Management Company (Private) Limited.
What is Unit Trust Management Co (Pvt) Ltd? (UTMCL)
Unit Trust Management Co. (Pvt) Ltd (UTMCL), managers of Ceybank Unit Trust Funds, is one of the leading Asset management companies in Sri Lanka. Established in 1991, UTMCL currently manages over Rs.2.5 billion in client's funds.
Bank of Ceylon, Sri Lanka Insurance Corporation limited, Carson Cumberbatch PLC, Unit Trust of India and HSBC Global Asset Management (Hong Kong) are the shareholders of UTMCL.
UTMCL offers investment management expertise to institutions and individuals through customized portfolio management services and unit trusts. At present UTMCL manages three unit trust funds;
Ceybank Unit Trust (Income and Growth Fund)
Ceybank Century Growth Fund (equity fund)
Ceybank Gilt Edged Fund
The primary objective of UTMCL in asset management is to provide a service to the client in order to maximize returns commensurate with the risk, considering specific investment needs of the client.
How long has UTMCL been in operation?
UTMCL was incorporated in 1991; UTMCL was promoted by the Bank of Ceylon, Merchant Bank of Sri Lanka Ltd., Carson Cumberbatch PLC, Unit Trust of India and HSBC Global Asset Management (Hongkong) Ltd. The overseas equity partners of UTMCL have provided technical assistance, conducted training programs and provided guidance to keep abreast with the international norms in fund management.
UTMCL launched its first fund, Ceybank Unit Trust (Income and Growth Fund) in March 1992 with the objective of providing regular dividend income to investors, while balancing risk with reward to achieve a reasonable rate of return. Ceybank Unit Trust has grown to become the largest unit trust fund in the country in the income and growth sector with net assets over Rs.1800 million and more than 3500 unit holders.
Ceybank Century Growth Fund was the second unit trust fund launched by the UTMCL, in January 1997, with the objective of providing a higher capital growth in the medium to long-term, assuming a higher level of risk. The Ceybank Century Growth Fund has also grown with assets over Rs.200 million and approximately 1000 unit holders.
Ceybank Gilt Edged Fund was the third fund launched by the UTMCL, on the 17th March 2008. This fund is a closed end Unit Trust Fund with a life of 4 years. The fund pays semi annual dividends in January and July, providing regular income to the investor at a low level of risk.
Who takes the Investment decision?
The Company has a fund management department that takes investment decisions for the funds The Fund Management Division consists of well-qualified personnel who have more than 10 years experience in the industry. They are involved in providing a professional and ethical investment management service, which is adequately backed by up-to-date investment research.
Being an associate company of the Bank of Ceylon, the largest commercial bank in the country and dominant market player with vast experience, UTMCL is in an advantageous position to assist clients also to invest in Government and corporate debt securities efficiently, at the best possible investment yields.
Who is The Trustee?
The Trustee is an institution independent from the Manager and monitors the manager's adherence to the Trust deed and regulatory requirements. They also create and cancel units at the request of managers, and also ensure registration of unit/shareholder. The Trustee is the custodian of the fund's assets and holds it in Trust on behalf of the unit holders
Eg. Bank of Ceylon is the Trustee for Ceybank Unit Trust Funds
What are the different types of Unit Trust Fund schemes?
Unit Trust Fund schemes can be classified as follows:
Open-end funds: An Open-end Fund is one that is available for subscription on an ongoing basis. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices.
Closed-end funds: A fund which has a fixed maturity. Investors can only invest during the initial offer period (IPO)
By Investment Objective
Growth Funds: The aim of growth funds is to provide capital appreciation over the medium to long term. Such schemes normally invest a majority of their funds in equities. Growth schemes are ideal for investors who have a long term outlook and are seeking growth over a period of time.
Balanced Funds: The aim of Balanced Funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their Prospectus. These are ideal for investors looking for a combination of income and moderate growth.
Income Funds: The main aim of income funds is to provide current income at low levels of risk. The funds are suitable for investors who require a regular income.
What is a Prospectus?
It is a document which provides investors with important information about the fund. Investors should read it carefully before investing. A prospectus contains descriptions of:
Nature of the Fund
Fees and charges
Investment Objective of the Fund
The AMC and Trustee
Investment Strategies and Restrictions
Rights of the Unitholders
What is the Net Asset Value (NAV)?
The net asset value (NAV) is the market value of the Fund's assets net of all costs. It is calculated at the end of each trading day.
The price (value) of a unit is calculated based on the NAV and published daily. Units are bought and sold based on these prices
What are Dividends?
A Unit Trust Fund may receive dividend or interest income as well as trading profits from the securities it owns; this income in turn is distributed to Unitholders as dividend. Most open-end Funds offer an option to purchase additional units with the dividends. Dividends are often distributed annually.
Are investments in Unit Trust Funds safe?
Different funds have different risk profiles, which are stated in their objectives. Funds which categorize themselves as low risk, invest generally in debt which is less risky than equity. Stock market related investments cannot be termed safe with certainty; they are inherently risky. Investors should choose their fund depending on the amount of the risk they are willing to tolerate.
What are the Risks in a Unit Trust Fund?
Equity Funds are open to market risk i.e. there is a possibility that the price of the stocks in which the Fund has invested may decrease. Of course, the prices may also go up, making it possible for the Fund to earn profits
What are the benefits of a Unit Trust Fund?
Your money is managed by experienced and skilled professionals
Your investment is automatically diversified over a large number of companies and industries, thus reducing the element of risk
Your money is very liquid - can be withdrawn easily
The potential to provide a good return at appropriate risk levels over the medium to long term is better in a wide range of securities
The costs of research and investing directly in the individual securities are spread over a large corpus and thousands of investors thus minimizing individual risks
There is a high degree of transparency in the operation of a Unit Trust Fund, so you can take investment decisions based on variety of information
You have a choice of schemes to suit your needs
The industry is well regulated with many measures oriented towards investor protection
Do Unit Trust Funds Assure Returns?
It is not possible to guarantee a fixed return in a unit trust
How do you make money in a Unit Trust Fund?
Unitholders receive a return on their investment in two ways.
Appreciation of the unit price
What are the Tax Benefits for investing in Unit Trust Funds?
Both dividend and capital gains are exempt from tax.
Who should invest in Unit Trust Funds?
Unit Trust Funds can meet the investment objectives of almost all types of investors. Younger investors who can take some risk while aiming for substantial growth of capital in the long term will find Growth Schemes (i.e. Funds which invest in stocks) an ideal option
Older investors who are risk-averse and prefer a steady income in the medium term can invest in Balanced Schemes (i.e. funds which invest in Stocks and Money market instruments). Investors in middle age can allocate their savings between Income Funds and Growth Funds and achieve both income and capital growth.
Are Unit Trust Fund schemes suitable for small investors?
Unit Trust Funds are meant for small investors. The prime reason is that successful investments in financial markets require careful analysis which is difficult for a small investor. Unit Trust Funds are usually equipped to carry out thorough analysis and can provide superior returns.
How do we invest in Ceybank Unit Trust Funds?
You can visit UTMCL head office located at 3rd Floor Bank of Ceylon building York Street Colombo 01 or Ceybank Units-Customer Service Center, G1, Ceybank House Kandy. If you are not close to these places you can receive information from any Bank of Ceylon branch or you can call us on 0117602000 -2 and visit our web site www.ceybank.com for further information