Business

The need for investor education about risk-taking and Unit Trusts

Published

5 months ago

2025/09/24

Sahan Weerasooriya

Jeevan Sukumaran

Interview with Jeevan Sukumaran, Secretary, Unit Trust Association, Sri Lanka

What does “risk” really mean in investing, and why should the public not be afraid of it?

At the mention of the word risk in terms of investing, especially in a Sri Lankan context, there can be a significant level of fear or stigma attached to it. To some degree, this is fair given the country’s history of civil war, investment company scams (such as Golden Key/Ceylinco and Sakvithi and in more recent times, the Easter Attacks, Covid and the Economic crisis. This has led to a large majority of potential investors being afraid to venture very far beyond commercial banking products and, therefore, losing out on the earnings potential of other asset classes.

In investing, risk means the possibility that the value of your investment might go up or down and not a guarantee of loss, but more a chance of fluctuation. For example, share prices rise and fall all the time. While those movements may look worrying in the short term, history shows that markets generally grow in the long run. As such, investors shouldn’t necessarily fear risk, but should instead understand the different types of risk (both in general and based on the asset class) as well as risk’s relationship to return.

What are the main types of risks (market, credit, liquidity) that investors should understand?

Several different types of risks affect investors in terms of capital markets (and unit trusts); however these can be classified into direct and indirect risks. The three most direct risk types that can affect investors are;

Market Risk – The broadest form of risk, which can be further subclassified into systematic and unsystematic risks. Systematic risks are high (macro) level risks that tend to affect the entire economy as a whole and are harder to diversify if all investments are within the country. Examples in Sri Lanka would be the Economic Crisis of 2022 with high inflation, currency depreciation, and political instability. Entire markets were affected, with even well-run and profitable companies seeing downturns. Unsystematic risks are connected to specific sectors/industries/companies that are affected by an industry/sector/company-specific issue and can be reduced through diversification. Examples of this could be the export sector being negatively impacted by tariffs.

Credit Risks – Credit risk is the risk that arises due to a counterparty being unable to meet their obligations on time or at a lower than agreed yield or not being able to settle at all (default risk). To a large extent, reports from rating agencies such as Fitch and Lanka Ratings will enable potential investors to gauge the level of credit risk they could potentially face by investing in a specific company/instrument. This, coupled with investing in companies with strong corporate governance, clear transparency and strong regulatory oversight, will enable investors to reduce their exposure to credit risk.

Liquidity Risk – deal with how easily investments can be turned into cash. Market liquidity risk appears when assets cannot be sold quickly at a fair price, which often happens in stressed or thinly traded markets. Funding liquidity risk is slightly different: it is the danger that an investor or institution cannot meet short-term payment or redemption obligations, even if they hold valuable assets. Both forms of liquidity risk can amplify market shocks, making them especially important to watch during times of financial stress.

Secondary or indirect risks may not be visible daily, but can amplify core risks. Operational risks include failures in systems, processes, or people, as well as fraud, compliance breaches, or cyberattacks. Event and external risks stem from political changes, regulatory shifts, wars, sanctions, natural disasters, or climate events. Behavioural risks arise from investor psychology, such as overreaction, herd behaviour, speculative bubbles, or reliance on flawed models. Instrument-specific risks relate to specific products, including reinvestment or prepayment risk for bonds, concentration risk from overexposure to one asset or sector, leverage and derivatives risk that magnifies gains and losses, and custody risk where assets held by a custodian could be lost.

How do Unit Trusts help reduce or balance these risks through diversification, and what safeguards are in place to help protect investors?

There are three main ways in which Unit Trust Investments help reduce/balance risk.

Diversification – Unit trusts enable investors to diversify their investments across various assets, reducing the risk associated with putting all their eggs in one basket. This can be particularly beneficial for smaller investors who may not have the capital to build a diversified portfolio on their own. By spreading investments across different sectors, companies, and asset classes, unit trusts can help mitigate the impact of poor performance in any single investment.

Regulatory Protection – Capital market regulators set rules on how Unit Trusts must operate. These include requirements for transparency, reporting, and fair treatment of investors. Unit Trusts are heavily regulated by the Securities & Exchange Commission of Sri Lanka with strict rules and regulations (CIS Code) governing investments and fund operations. In addition, all assets of the fund are held by and invested through an independently appointed Trustee whose responsibility is to safeguard the unitholders’ funds and prevent misappropriation.

Professional Fund Management – Managed by experienced (and SEC-approved) fund management professionals and backed by dedicated research/financial analysts. Advantageous to investors who may not have the time, resources or expertise to monitor global, macro and micro conditions regularly.

How can investors identify their personal risk appetite before choosing a fund?

Investors first need to understand the different risks applicable to different asset classes clearly. As such, knowledge of the various asset classes and the risks that can affect those assets is the most crucial step for an investor. After this point, the investor should identify their own risk appetite and how much of a risk taker they are (from conservative to aggressive). This should also be coupled with their investment horizon and both short- and long-term liquidity requirements.

What types of Unit Trusts are best suited for conservative, balanced, or aggressive investors?

Conservative investors – Money market funds or government security-based funds. These fund types are generally low risk and offer high liquidity whilst offering steady, regular returns.

Balanced – Longer-term Income/Bond/Corporate Funds as well as Balanced funds (Equity and Fixed Income). These funds offer better returns whilst attempting to reduce significant volatility and capital erosion.

Aggressive investors: Growth/ Equity funds/Sector Funds, which invest mainly in listed equities. Given the nature of the stock market, higher volatility is to be expected; however, significantly higher returns can also be obtained.

6. Why is investor education about risk essential for building long-term confidence in Unit Trusts?

Investor education about risk is essential because it transforms fear into informed decision-making. Many people avoid investing simply because they don’t understand how risk works, or they overreact to short-term market fluctuations. By learning about different types of risk, investors can gain a realistic view of what to expect and/or how to respond.

Education also helps investors understand how Unit Trusts mitigate risk through diversification, professional management, and regulatory safeguards. Knowing that their money is being managed according to clear rules and spread across multiple assets gives investors confidence that short-term volatility is normal and manageable.

Finally, educated investors are more likely to stick to their long-term investment plan instead of making impulsive decisions during market swings. This discipline is key to benefiting from the compounding effect of investments over time and achieving financial goals. In short, risk education builds trust, reduces anxiety, and empowers investors to make smarter, more confident investment choices in Unit Trusts.

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Business

SriLankan Airlines Update on Middle East Operations

Published

8 hours ago

2026/03/3

Rashi Nihara

03 March 2026; Colombo – As airspace in certain parts of the Middle East continues to remain closed due to the ongoing conflict, the following SriLankan Airlines flights scheduled to operate today have been cancelled:

Flight Route
UL 225 Colombo–Dubai
UL 226 Dubai–Colombo
UL 231 Colombo–Dubai
UL 232 Dubai–Colombo
UL 229 Colombo–Kuwait
UL 230 Kuwait–Colombo
UL 217 Colombo–Doha
UL 218 Doha–Colombo
UL 253 Colombo–Dammam
UL 254 Dammam–Colombo
UL 265 Colombo–Riyadh
UL 266 Riyadh–Colombo

We sincerely appreciate our passengers’ understanding and patience as these cancellations are implemented in the interest of their safety and wellbeing.

For more information, please contact: 1979 (within Sri Lanka); +94 11 777 1979 (international); WhatsApp +94 74 444 1979 (chat only); your travel agent; or visit www.srilankan.com

Business

Middle East escalation sends oil soaring; Sri Lanka faces price shock despite assurances on supply

Published

17 hours ago

2026/03/3

Thilina Walpola

Vessels have been forced to anchor as Iran threatens to close the Strait of Hormuz

Global oil prices surged sharply yesterday following coordinated US and Israel-backed strikes on Iran, and Tehran’s retaliatory attacks targeting US interests in the region, alongside escalating hostilities involving Hezbollah in Lebanon. The renewed instability in the Middle East – the artery of the world’s energy supply – has sent tremors through financial markets and triggered fresh anxiety in oil-importing nations such as Sri Lanka.

Brent crude climbed steeply in early Asian trading, with traders pricing in the risk of supply disruptions through critical maritime chokepoints, particularly the Strait of Hormuz, through which nearly a fifth of global oil passes. Market analysts say the spike reflects not only immediate supply fears but also the potential for prolonged geopolitical tension that could keep prices elevated for months.

Meanwhile, Asian equities reacted nervously to the unfolding crisis. Major indices across the region retreated as investors fled risk assets, concerned that higher energy costs could dampen growth and reignite inflationary pressures.

Asian oil and gas stocks – the only winner in Asian equity markets – rallied strongly, reflecting expectations of higher revenues amid rising crude prices. This divergence of falling broader markets alongside rising oil shares signals investor anticipation of higher inflation and weaker consumer demand in emerging markets like Sri Lanka.

Meanwhile, reports of increased Chinese crude purchases are further compounding market anxiety. If Beijing accelerates buying to secure strategic reserves in anticipation of supply constraints, global prices could climb even further because China’s procurement strategy has great influence on the world oil price.

“Should Chinese demand rise while Middle Eastern exports face disruption, the supply-demand imbalance could tighten considerably, amplifying volatility in global energy markets”, say global energy market analysts.

In Sri Lanka, long queues have begun forming at fuel stations amid fears of shortages and higher pump prices once new shipments arrive. The government has sought to calm public nerves, stating that sufficient stocks are available for approximately one month and that fresh supplies are being sourced from India and Singapore.

Deputy Minister of Tourism, Dr. Ruwan Ranasinghe said that as Sri Lanka imports refined products primarily from India and trading hubs such as Singapore, direct disruptions to Middle Eastern sea routes would not immediately interrupt supply chains. He maintained that there is no cause for panic buying.

In an unusual show of political maturity, Prasad Siriwardena, an Opposition MP from the Samagi Jana Balawegaya (SJB) urged the public to remain calm and refrain from hoarding, warning that artificial shortages could emerge if panic-driven stockpiling spreads.

However, former minister Wimal Weerawansa criticised the government for failing to build a strategic reserve of at least three months, arguing that Sri Lanka’s total dependence on imported fuel leaves it dangerously exposed to prolonged geopolitical shocks.

Weerawansa contended that the government failed to anticipate the likelihood of US-Iran tensions escalating into direct confrontation and should have proactively guided petroleum authorities to secure adequate reserves in advance.

Meanwhile, an independent analyst told this reporter on the condition of anonymity that the global economic spillover could have wide-ranging consequences on Sri Lanka, outlining five factors.

Energy costs that feed into transportation, manufacturing and food prices

Tighter monetary policy risks as the Central Bank may hesitate to cut rates if inflation resurges

Slower growth as consumers and businesses reduce spending when energy costs rise

A widening trade deficit as Sri Lanka would face increased import bills

Pressure on the Rupee as increased dollar outflows for fuel imports could strain foreign exchange reserves

In conclusion, he said, “One can only hope that diplomacy prevails before oil’s surge turns into a sustained economic storm for the global economy.”

by Sanath Nanayakkare

Business

How ‘distant wars can quickly arrive at the domestic pump’

Published

17 hours ago

2026/03/3

Thilina Walpola

Vehicles lining-up for petrol in Colombo as panic buying takes control.

The harsh economic realities behind soothing words

Sri Lanka’s fragile economic recovery faces a renewed external threat as escalating conflict involving Iran sends global oil prices sharply higher, raising concerns over inflation, foreign reserves and fiscal stability.

While authorities insist there is no immediate fuel shortage, economists warn that prolonged instability in the Middle East could trigger a familiar and painful chain reaction in an import-dependent economy still recovering from its worst financial crisis in decades.

The state-run Ceylon Petroleum Corporation (CPC) confirmed that the country currently holds sufficient petrol and diesel stocks for more than a month.

Energy Minister Eng. Kumara Jayakody assured that scheduled shipments remain unaffected and urged the public to refrain from panic buying, warning that artificial demand could disrupt smooth distribution.

But behind those reassurances lies a harsher economic reality: Sri Lanka does not need a physical fuel shortage to suffer — a sustained spike in global crude prices alone could be enough.

Market jitters intensified amid fears that any escalation could threaten shipping through the Strait of Hormuz, the narrow maritime corridor through which a significant share of the world’s oil supply passes daily. Even speculation of disruption has historically been sufficient to push prices sharply upward.

Sri Lanka sources refined fuel from multiple markets, including India and Southeast Asia. However, global benchmark prices ultimately determine import costs. If crude prices remain elevated, the country’s monthly fuel import bill could surge — placing fresh strain on dollar reserves.

Higher oil prices would ripple across the entire economy. Transport, electricity generation, manufacturing, agriculture and food distribution are all energy-sensitive sectors. A sustained price increase could reverse recent gains in inflation control.

The Central Bank of Sri Lanka has worked to stabilise inflation and the rupee through tight monetary discipline. Analysts caution that a renewed oil shock could complicate this effort, widening the trade deficit and pressuring the exchange rate.

“Sri Lanka is structurally vulnerable to energy price shocks. Even without direct supply disruption, higher global prices immediately translate into macroeconomic stress, a senior economic analyst said.

The government is currently operating under strict fiscal consolidation targets as part of its recovery programme. A rising fuel bill could expand subsidy pressures or force politically sensitive fuel price adjustments.

Any increase in administered fuel prices would inevitably feed into cost-of-living pressures, testing public tolerance amid ongoing austerity.

Beyond oil markets, instability in the Middle East carries another risk: remittances. The Gulf region remains a key source of foreign employment for Sri Lankans and a crucial inflow of foreign exchange.

Any economic slowdown or labour disruption in the region could dampen remittance flows, reducing one of the country’s most stable dollar lifelines.

An energy expert said for Sri Lanka, the Iran conflict is not merely a distant geopolitical event. It is a potential economic stress test at a moment when stability remains hard-won.

“Whether this turns into a temporary price spike or a prolonged oil shock will determine how severely it tests the country’s recovery trajectory. For now, policymakers are watching global markets closely — aware that in today’s interconnected economy, distant wars can quickly arrive at the domestic pump.”

By Ifham Nizam