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How Do Unit Trusts operate In Sri Lanka?

Unit Trusts were introduced to Sri Lanka in 1991 to provide an alternate investment for the people of Sri Lanka with the benefit of the capital market. The Securities and Exchange Commission of Sri Lanka (SEC) as the Main regulator (watchdog) has the power to permit a Fund Management Company referred as Fund Manager to launch a unit trust under the SEC ( Securities and Exchange Commission Act).

The Objectives of the fund
The Fund Manager is required by law to formulate a fund with a particular objective and is presented to the SEC in order to seek an approval. The objective of a fund, which could be growth, income and growth or income only and the strategy to achieve the objective needs to be formulated by the Fund Manager to deliver results within the expected period of time. As the investments of the fund are focused on the specific financial instruments, the fund management company also needs to select authorised investments to suit the type of objective of a fund.

The Fund Manager needs to submit an Explanatory Memorandum (EM) and a Trust Deed to obtain the license from the SEC to launch and operate the Fund. The EM provides necessary information about the Fund offer, the Fund Manager, Trustee and other relevant investor information.

The Trust Deed gives details of the following

1. Formation of the trust and its deposited property
2. Registration process of the investors
3. Dividend distribution
4. Areas of intended
5. Investment of the Fund’s assets
6. Appointment of auditors
7. Covenants of the Manager and the Trustee
8. Procedure for a unit holder meeting etc.

The Trustee usually a reputed bank and provides services and acts as the beneficial owner on behalf of the investors in the fund.

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