Lankan mutual funds’ outflows rise amid economic turmoil

• Assets under management shrink over 8% to Rs.178bn as of March 2022
• “Economic and social instability may have driven the outflows, with investors seeking safer assets”- Fitch

The Sri Lankan mutual fund industry experienced large outflows in March 2022 with total assets under management (AUM) shrinking by more than 8 percent to Rs.178 billion based on Unit Trust Association of Sri Lanka (UTA) data, Fitch Ratings said in a new report. 

“The country’s economic and social instability may have driven the outflows, with investors seeking safer assets. Total Sri Lankan mutual fund assets are still heavily skewed to money market funds (MMFs), despite AUM decline in the asset class,” Fitch said.

MMFs remain the largest asset type, accounting for 53 percent of the total mutual fund assets at end-1Q22, down from 68 percent at end-2020. 

Fitch recently downgraded Sri Lanka’s Long-Term Foreign-Currency Issuer Default Rating to ‘C’ from ‘CC’, after the Ministry of Finance said on 12 April 2022 it had suspended debt servicing of several categories of external debts.

Sri Lankan funds are exposed to the increasingly challenging operating environment and higher credit risk in some entities in which they may invest.