What are the different types of investments available in Sri Lanka

Everyone knows that every young person must invest their money in order to grow their money. It is not enough to earn a big amount or to have hundreds of thousands of rupees in savings or inheritance. The secret to enjoying long-term financial prosperity is knowing how to invest your money properly. Luckily for every first-time investor, there is a wealth of information available on how to dip your toes in the pool of investment; on social media, blogs, YouTube, messaging groups, forums etc. However, most of this advice is either too general or not geared for Sri Lankan audiences, who have to navigate very different waters. The levels of risk of some investments are very different in Sri Lanka when compared to international ones.

Keep in mind that investing all your money in one thing increases the level of risk you undertake; it is important to spread your money across various investments in order to diversify and reduce risk of losing your money. If you are looking to try your hand at investing, here are some of the different types of investments available in Sri Lanka.

Stock Market

The stock market is the first thing people think of when they hear “investment”. While it is one of the easiest to get into, it is also one of the most difficult to navigate, especially for rookie investors. Nowadays, investing in the stock market is as easy as downloading and registering on the CSE mobile app followed by buying and selling shares as you wish. However, without any knowledge of how the economy works and how markets respond to environmental factors, it is one of the riskiest things to do. It’s best to start with short-term investments of smaller amounts of money (which you should be prepared to lose) that you can invest in order to reap minimal monetary benefits but gather invaluable knowledge about how the landscape works.  Stock market investing is one of the riskiest, hence it also has the potential for the highest returns.

Unit Trusts

For a beginner investor, a unit trust is a safe place to start from. Unit trusts require a fund manager who will gather money from various investors to put into diversified types of investments. Unit trusts are ideal for investors who wish to try their hand at investing but don’t have enough expertise or time to dedicate towards researching and staying updated on economic conditions. There are various types of unit trusts and the risk involved depends on the nature of the investments included in the unit trust. A savvy fund manager is key to these kinds of investments. Unit trusts are considered an older form of mutual fund.

Mutual Funds

Mutual funds are very similar to unit trusts in that they are also a fund of money pooled by many investors and invested across diversified instruments by a fund manager. The main difference between mutual funds and unit trusts is that mutual funds are actively managed - being regularly updated and changed with new investments coming and going on a regular basis. They are more open-ended than unit trusts where the investment is agreed-upon at the start, with investors often being offered new opportunities.

Government Securities

Government securities are investment instruments offered by the Central Bank of Sri Lanka in order to generate more income for the government in times of need, and are generally considered one of the safest investments available with low to medium rates of return. Unless the country is undergoing an economic crisis, these securities are very stable as the investor is virtually guaranteed to receive their money (plus the interest accumulated over the course of the time period) on maturity. There are two main types of government securities: treasury bills and treasury bonds.

(Note: An economic crisis might be impending due to the Covid-19 pandemic and these securities might have higher risk than usual)

Treasury Bills

Treasury bills are short-term government securities with a time period of usually a year or less. These do not work on the standard interest machinations, with the investor being able to buy treasury bills at a discount on the face value and making a profit when they are able to recover their investment at the face value. 

Treasury Bonds

Treasury bonds are more long-term government securities with a time period of usually more than a year up to around thirty years. Interest is usually paid semi-annually or annually in the standard way.

How can I get started?

First-time investors are recommended to consult an investment advisor at least once prior to making any large investments. Most commercial banks (private and government) offer select investment services, and there are also investment banks that offer more varied specialised investment options. Find out about the associated fees, as well as the minimum investment value and time period before you select a service provider. Ensure that you communicate your investment goals so that their advice can be tailored towards it.

Disclaimer: This blog article is not intended as investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature, OnCredit.lk highly recommends you to seek advice from a qualified and registered financial or investment advisor.