Unit trusts in Sri Lanka: Growing investment trend

• An expert conversation with Unit Trust Association of Sri Lanka (UTASL) President Christine Dias Bandaranaike

UTASL President Christine  Dias Bandaranaike

Christine Dias Bandaranaike, CFA Charterholder since 1999, brings over 15 years of experience in pooled funds both locally and internationally. As the current UTASL President, she has been at the forefront of a remarkable transformation in Sri Lanka’s unit trust industry — one that has seen investor numbers double and assets under management almost triple within five years. Here, she shares her insights on why unit trusts matter, how they work, and why they are poised to become a cornerstone of financial inclusion in Sri Lanka.

Q: When we think of investing, most Sri Lankans still stick to fixed deposits, gold, or stocks. How exactly do unit trusts work — and why are they relevant for personal wealth management?

 Unit trusts are pooled investment vehicles that break down traditional barriers to accessing professional investment management. Unlike direct share investments, which require knowledge, time, and risk-taking, or fixed deposits that restrict liquidity and often underperform inflation, unit trusts offer low entry points (as little as Rs. 1,000), daily liquidity. 

SEC-regulated fund managers professionally manage them. This means every day, people, not just high-net-worth investors, can access diversified portfolios and expert oversight. It’s a simple, accessible way to start investing and growing wealth systematically.

Q: What risk-free alternatives exist in Sri Lanka, and how do unit trusts fit in?

 Government securities like Treasury bills and bonds are considered the traditional “risk-free” options because the State backs them. But not everyone can access them easily due to minimum investment sizes or a lack of knowledge. That’s where gilt-edged unit trusts come in. These funds invest in government securities and repurchase agreements, giving investors similar low-risk exposure, with much easier access and liquidity.

Q: The industry has grown significantly. What’s driving that?

 From 2020 to 2024, the number of unit holders grew by 119%, and total AUM rose by 172%, from Rs. 201 billion to Rs. 547 billion. We now have 90 unit trust funds in the market, compared to just 75 units years ago. 

This growth reflects a few things: post-pandemic economic uncertainty, high inflation, growing awareness about wealth erosion through traditional savings, and improved financial literacy. That said, we still have a long way to go. Financial literacy remains low across the country, and that’s why UTASL is stepping up to lead national awareness through education, digital outreach, and public engagement.

We’ve seen inspiring examples from our neighbours in India, where even rickshaw pullers, vegetable vendors, and small-scale farmers have started investing regularly in mutual funds through low-cost, digital platforms. With the proper guidance and access, these communities have built meaningful portfolios over time. That shows us that the power of pooled funds is not limited to urban or wealthy populations — it’s for anyone who wants to build a better financial future.

Q: Why is diversification so important — and how do unit trusts help achieve it?

 Diversification is critical for managing risk. Unit trusts give investors access to a broad basket of assets, equities, fixed income, or both instantly. With one purchase, you’re getting exposure to multiple companies, sectors, and instruments, all overseen by professionals. It’s the practical way to avoid putting all your eggs in one basket. This approach mirrors what global best practices have shown us: pooled funds have worked around the world, and they can work here too.

 Are unit trusts safe for the average investor?

 They’re not “risk-free,” but they’re structured to manage risk better than DIY investing. You’re investing in portfolios that are monitored, diversified, and overseen by licensed trustees and custodians. There are equity funds for long-term growth, balanced funds for stability, and money market funds for safer, short-term needs.

As inflation continues to erode the real value of savings, unit trusts provide a tool to protect and grow purchasing power over time.

 How can a new investor choose the right unit trust?

 Start by understanding your goals:

1. What’s your investment time horizon? Are you investing for the short term (12 months), medium term (one to three years), or long term (three years and above)?

2. Assess your risk tolerance, like can you handle market ups and downs?

3. Define your return expectations: Ask if you want a steady income (dividends) or long-term growth (capital appreciation)?

Then, look at the fund’s historical performance, fees, and the reputation of the fund manager. UTASL guides our website (www.utasl.lk), where all member companies and fund types are listed.

Due diligence is essential, especially in emerging markets like ours, where information isn’t always readily available. Our goal is to make investing more straightforward for every Sri Lankan.

 What kinds of risks are involved, and how can they be managed?

 Like all investments, unit trusts carry risk, such as market volatility, default risk in fixed income instruments, and fund manager risk. But these are managed in several ways: asset quality restrictions, regulatory caps on exposure, and daily NAV disclosures. Plus, each fund is overseen by an independent custodian and trustee, ensuring transparency and investor protection.

 What’s next for the unit trust industry in Sri Lanka?

 Growth has been encouraging, but we’re just getting started. Our goal now is to take financial literacy to every corner of the country. We’ll do this through social media campaigns, partnerships, and community-based financial education.

Unit trusts are more than investment products; they’re tools that can help people plan for children’s education, retirement, or building wealth with discipline. Around the world, pooled funds have helped millions build a better future. We believe they can and will do the same for Sri Lankans. 

To learn more about unit trusts, which allow you a broad basket of assets, equities and fixed income. Visit us at www.utasl.lk to learn more or find a licensed fund manager near you.