Part 1: Tips for Retail Investors
For individual investors, knowing how to make the most of their financial assets can be a challenge given the complex nature of financial markets and investment vehicles therein. To share views on what retail investors need to be aware of when investing in Sri Lanka’s capital market, Shenali de Silva of the Economic Intelligence Unit interviewed Ruvini Fernando, CEO of Guardian Acuity Asset Management Limited; Ravi Abeysuriya, Group CEO/Director, Candor Capital; and Nishantha Hewavithana, Head – Research and New Products at the Colombo Stock Exchange, who are members of the Ceylon Chamber of Commerce’s National Agenda Committee (NAC) on Finance and Capital.
In this first article, Ruvini Fernando and Ravi Abeysuriya discuss with Shenali De Silva what retail investors need to look at when investing in Sri Lanka. The next article will specifically explore the stock market.
At the outset of our discussion, Ruvini and Ravi observe that creating awareness about non-traditional investment opportunities for the public is critical when democratizing capital markets. While there is a considerable awareness about the stock market, individual investors tend to rely on savings accounts and current accounts, given the lack of knowledge in availability of other investment vehicles.
Both Ruvini and Ravi state that money market funds are a good alternative to parking money in savings accounts. Instruments such as unit trusts in particular are attractive and are a flexible option as they are open ended investment which permit issuing and redemption of shares at any given time.
All our unit trusts are open-ended, which means there’s daily liquidity available, there’s daily redemption is possible. We invest in a large cross section of money market instruments which give much better returns. For example securitization, and commercial papers, we do a selection of finance company deposits and other instruments which are suitable for short term investments so many of the money market funds give 11-12% return which is a very good option to keep your money instead of lying in a savings account
Money market instruments which are attractive instruments, which are offered by Unit Trusts provide a better yield. Up to now have not gone bust and this is as flexible as savings accounts.
Ruvini believes that interest rates are likely to come down as the country’s economy develops, budget constraints lessen, and the Balance of Payments reduces. Therefore, seeking out alternative investments to interest-bearing instruments would be essential to maintaining a good lifestyle.
So when it comes to long term savings like retirement plans and people saving up for their retirement, it’s not going to be enough for them to put their money in a bank deposit, and accumulate interest at 7-8%. Because inflation is also catching up, and when you retire you want an adequate pool of money to maintain a good lifestyle. With the interest rate shift downwards, you will have cycles where it’s up and coming down. But the overall trend is downwards. So it’s really essential for you to maintain your wealth to seek out these alternatives.
Corporate debt going forward (listed debt), could be an opportunity, because ultimately for corporates, it is cheaper to borrow from the listed debt market than go to banks to borrow, they will have to pay a slightly higher premium to overcome the tax. I strongly urge people who have long term money, to look at listed debt going forward.
Furthermore, while real estate is an attractive investment for corporates and high net worth individuals, investment vehicles such as Real Estate Investment Trusts (REITs) provide a platform for retail investors to capitalize on a bourgeoning real estate market. REITs are currently not operational in Sri Lanka, but are likely to be introduced following amendments to the Securities and Exchange
In the future we’re looking at REITs, which will give retail investors who don’t have land or large amounts of capital to invest in apartments the opportunity to this. It is one area a lot of growth is likely to happen.
Seeking out the assistance of fund manages is beneficial when investing in the long term investments such as government securities. Not only do fund managers conduct an in-depth analysis of the market and make decisions based on interest rates, they also assist with diversification of assets and are particularly helpful when assessing the health of financial companies to ensure drastic losses aren’t made.
Overall both Ravi and Ruvini emphasize the need for individual investors to constantly gather knowledge and conduct extensive due diligence prior to investing in both the long term and the short term.
Ruvini observes that when investing in the stock market, retail investors need to be particularly cautious of the underlying drivers of the performance of the stocks and the importance of investing at opportune moments when the markets are low. (Part 2 of the series will discuss investing in the stock market in more detail).
Ravi states that individual investors should be treat their investment with utmost care. Utilizing the findings of credit rating agencies such as Fitch Ratings can help when assessing the health of long term investments.
Furthermore, planning ahead is of vital importance observes Ruvini, emphasizing the importance of early investing. Inflation, exchange rates future expenses, rising healthcare costs all need to be factored in, in order to enjoy a comfortable lifestyle.