Unit Trust as a conduit for Unsophisticated Investors to access the Capital Market

One of the main concerns for the industry is "awareness" which is at a very low level, thus affecting the growth of the industry according to the recent discussion, which took place in association with Securities and Exchange Board of India (SEBI), Asia Pacific Regional Committee of the International Organization of Securities Commission (IOSCO),  Unit Trust Association of Sri Lanka (UTA) and Securities and Exchange Commisson of Sri Lanka (SEC) 

In today's dynamic environment, spreading financial literacy is the most critical imperative for spearheading growth in the Unit Trust Industry. Today, we see more Fund Managing Companies as entrants to the Unit Trust Industry, leading to more products and competition.It was further appreciative to note the concessions from the Budget on the removal of taxes and relaxed exchange control regulations enabling foreign investors to invest in equity and all types of fixed income funds and as such foreign investors can now invest in all types of Unit Trusts. Furthermore, there are continuing concerns that the Industry has been grappling with over a considerable period of time, such as the under-penetrated population, inaccessibility in smaller towns due to lack of an efficient distribution network, heavy reliance on institutional sales, low financial literacy levels and cost pressures emanating as a result of inefficiencies in systems and processes.

Emphasis  is placed that there is a need for the Unit Trust Managing Companies to reach out to the Provinces to capture a wider share of investors by broadening their distribution channels. Together with investor education, segmenting the client base and aligning product offerings to cater to the requirements of customers are also key to redefine the business and operating models to enhance key investment related value propositions. It is important to note that the requirements of investors today is mapped into a hierarchy of needs: the new age investor demanding a higher rate of return, more transparency and most importantly, the freedom to chose from a wide range of product alternatives. Moreover it is essential to gauge that investor needs differ in urban cities to smaller towns, hence investor awareness programs need to be designed accordingly.

The SEC has taken various measures to assist the development of the Unit Trust industry, including the preferential allotment in IPO subscriptions of up to 10% under the Unit Trust Investor Category, granting approval for the listing of the first close-ended fund and supporting a study undertaken by the Unit Trust Association to develop a strategic marketing plan to popularize unit trust products in the country. We have also taken action to frame suitable guidelines to encourage the introduction of new funds namely Real Estate Investment Trusts and Exchange Traded Funds.

In conclusion Unit Trust Managing Companies today need to stay focused on a few aspects in order to ensure that the industry meets its growth objectives and the Business Strategies should continue to focus on reach, diversified customer base, investment performance and product innovation.