SEC to replace current Unit Trust Code with expanded version

Sri Lanka’s capital market regulator, the Securities and Exchange Commission (SEC), plans to replace the Unit Trust Code of 2011 with an expanded code termed as Collective Investment Schemes Code (CIS), in order to allow the introduction of new schemes such as exchange traded funds (ETFs) and hedge funds.

“Expanding on the Unit Trust Code of 2011, the CIS is being drafted to provide for a wider array of schemes such as exchange traded funds, hedge funds, etc. Once again, investors and issuers would be able to reap the benefits of the numerous investment avenues, 

which would come into being upon the code’s enactment,” SEC Director General Chinthaka Mendis said. The new code is being drafted with the technical support of the Asian Development Bank.

In 2021, Sri Lanka’s unit trust industry posted lacklustre performances. The net asset value of unit trusts declined to 3.4 percent year-on-year (YoY) to Rs.194 billion, although the number of unit trust holders, in 75 unit trust funds, rose by 13.4 percent YoY to 59,426.

During the year, the investment in equity by unit trusts rose by 25.4 percent YoY to Rs.17.58 billion while investment in Treasury bills remained unchanged.

Having taken into consideration the operational challenges, due to the unprecedented situation arose from the pandemic, the SEC in 2021 strengthened the risk-based approach in supervision of unit trust managing companies. 

Further, the SEC is evaluating the feasibility of introducing Global Investment Performance Standards (GIPS) for unit trust managing companies and investment managers. The SEC stressed that it aims to develop the unit trust industry as a channel for small investors to access the equity market.