Short answer: in Sri Lanka, mutual funds are called unit trusts. They are run by 16 managing companies licensed by the Securities and Exchange Commission, and the industry passed Rs. 600 billion in assets in early 2026, with almost 150,000 unit holders. For most savers the starting point is a money market or income fund: in 2026 money market funds have been earning roughly 8.5% to 9.75% a year, close to Treasury bill yields and above the Central Bank's 8.75% policy rate, with money available in a day or two. Unlike a bank fixed deposit, a unit trust is not covered by deposit insurance.
LKMF1212Below: the main fund types and what they earn, how unit trusts compare with fixed deposits and T-bills, how to invest, what you pay in tax and fees, and how to avoid unlicensed schemes.
The unit trust market in 2026
| Indicator | Figure | Source and date |
|---|---|---|
| Assets under management | About Rs. 609–610 billion | Unit Trust Association, January–February 2026 |
| Unit holders | About 149,600 (up 26% in a year) | Unit Trust Association, February 2026 |
| Number of funds | About 85 | Same |
| Licensed managing companies | 16 | SEC |
Income and fixed-income funds hold the largest share of assets, with money market funds next. The number of investors has been growing quickly as savers look for an alternative to fixed deposits that still pays a competitive rate.
Fund types and what they earned in 2026
| Type | What it holds | Return and risk |
|---|---|---|
| Money market | T-bills, repos, commercial paper, short bank deposits | Around 8.5%–9.75% a year in 2026; very low volatility; tracks short-term rates |
| Gilt / Treasury | Government securities | Close to government yields; low credit risk, some interest-rate risk |
| Income | Government and corporate debt, deposits | Usually a little above money market; more credit and rate risk |
| Balanced | Mix of bonds and shares | Moves with both bond and stock markets |
| Equity | Shares on the Colombo Stock Exchange | Highest long-term potential, but can lose value in weak markets, as in parts of 2026 |
Money market fund yields move with short-term rates: managers keep reinvesting at current T-bill and deposit rates, so if the Central Bank changes its policy rate, fund yields follow within weeks. Past returns are not guaranteed.
Unit trust, fixed deposit or Treasury bills?
| Money market / income unit trust | Bank fixed deposit | Treasury bills | |
|---|---|---|---|
| Return | Market-linked, changes daily | Fixed for the term | Fixed to maturity |
| Access | Redeem any time, usually paid in one to three working days | Locked; early withdrawal usually costs part of the interest | Hold to maturity or sell in the secondary market |
| Protection | No deposit insurance; assets held by an independent trustee | Sri Lanka Deposit Insurance Scheme up to Rs. 1.1 million per depositor per institution | Backed by the government |
| Regulator | Securities and Exchange Commission | Central Bank of Sri Lanka | Central Bank / Public Debt Department |
A practical mix: keep emergency money in a money market fund for quick access, use fixed deposits up to the insured amount for money you will not touch, and consider T-bills for a known amount you want to lock in. If you are weighing saving against paying down a loan, compare these returns with our guide to personal loan rates in Sri Lanka.
How to invest
- Minimum: many retail funds start at about Rs. 1,000, with top-ups and monthly plans from similar amounts; some specialised funds ask for more.
- Documents: your NIC (or passport for non-residents), proof of address if it differs from your NIC, a Sri Lankan bank account in your name for redemptions, and your tax identification number.
- Channels: directly with the managing company, online or at their offices.
- Fees: funds charge an annual management fee taken from the fund's assets, and some charge entry or exit fees; check the fund's documents before investing.
- Safety structure: the fund's assets are held by a trustee and custodian, separate from the managing company, and the SEC supervises the managers.
Tax
Qualifying unit trusts are treated as pass-through vehicles: the fund itself is generally not taxed, and income is taxed in the hands of unit holders. Interest income passed through to you is subject to withholding or advance income tax, generally at 10%, and dividends at a higher final rate. Your fund issues an annual statement of income and tax deducted; keep it for your tax return. Rules changed during 2026, so check the latest position with your fund manager or a tax adviser.
Avoid unlicensed schemes
Only invest with managing companies licensed by the SEC. Promises of fixed high returns, recruitment bonuses or "guaranteed" profits are signs of a pyramid or unauthorised deposit scheme; the Central Bank publishes a list of prohibited schemes. A real unit trust never guarantees returns and gives you a unit statement in your name.
The SEC's fund categorisation directive (SEC/SUP/2025/LO/367) required all unit trust managers to standardise funds into seven defined categories by 2 April 2026. As of October 2026, check that a fund's stated category matches its actual asset mix.
Tax rules changed under the Inland Revenue (Amendment) Act No. 11 of 2026, certified on 3 June 2026. Fund managers must now issue every unitholder a tax certificate within five months of each Year of Assessment. Without it, the fund loses pass-through status. Interest income is subject to 10% WHT/AIT, dividends to a 15% final withholding tax, as of October 2026. Capital gains tax rates on redemptions were revised from 3 June 2026, so confirm the current rate with your manager before selling.
The CIS Code of 2022 replaced the former Unit Trust Code of 2011, and every fund must maintain at least 50 unitholders. If you are a saver comparing deposit-backed options, see our Sri Lanka investment guide for context on rates.
Getting started
Decide what the money is for: instant-access savings suit a money market fund, two to three years suit an income fund, and longer horizons can include equity. Compare a few licensed managers on fees and past consistency, start with a small amount, and remember that a unit trust is an investment, not an insured deposit.
Before you invest or redeem, ask your fund manager for the current capital gains tax rate applying to your redemption, since the revised rates took effect on 3 June 2026. Also confirm how and when you will receive the annual tax certificate: without it, the fund faces direct taxation and your returns suffer. Check that the fund's category label matches the SEC's seven standard categories, as full compliance was required by 2 April 2026. Finally, remember that money market funds lack deposit insurance. Keep insured deposits for money you cannot risk, and use unit trusts only for money you can leave invested. For related borrowing costs, compare personal loan rates before deciding.