Unit trust investors:

Budget 2011 contains more benefits

With the improvement in the capital market outlook in Sri Lanka and good performance track record the unit trust industry looks forward for improved domestic and foreign investor participation in unit trusts.

The budget for year 2011, presented by the President the unit trusts are granted additional tax benefits for the investors and proposed to relax the exchange control to enable the industry to accept investments from foreign investors and funds.

In the past, the unit trusts were permitted to receive investments from foreign investors only in funds which have restricted its investments in Government securities to a maximum of 20 percent of its assets.

“This position is now changed with the budget proposal for year 2011 enabling foreign investors to invest in equity and all types of fixed income funds offered by licensed unit trust management companies through a bank account specified by the Exchange Controller,” a press release from the Unit Trust Association of Sri Lanka said.

The Unit Trust Association of Sri Lanka is happy to note that the Economic Service Charge (ESC) applicable to unit trusts will be removed thus reducing the burden on the funds from unrecoverable tax overpayments.

It is also appreciated the fact that the development of the corporate debt market will improve availability of quality instruments for the unit trusts to make investments and to pass through enhanced returns to the investors. “In this context it is expected that the rationalization of taxation through withholding tax at the point of issue of debt instruments similar to Government Securities will improve the trading in the secondary market thus improving investor interest in those instruments,” said the Unit Trust Association of Sri Lanka President S Jeyavarman.

It is also proposed in the budget to exempt all income generated from listed equity and corporate debt investments by a unit trust. Both capital gains and interest income will be exempted from these listed instruments which are expected to help the industry to show better returns to the investors.

The removal of debit tax will be beneficial to the unit trusts where the managers can take advantage of alternate investment opportunities available in the financial market without incurring the annualized cost of the debit tax.

The unit trust industry through licensed management companies currently offers 19 funds and the Assets under Management (AUM) of those unit trusts stands at Rs 16.9 billion as on October 30, 2010, the release further said.