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CAL Investment Grade Fund first unit trust to be assigned ‘A’ rating by Fitch

Fitch Ratings, the international credit rating agency, has assigned the Capital Alliance Investment Grade Fund a first-time rating of A [Af(lka)], making it the only unit trust fund in Sri Lanka to currently be recognised by the institute.

As the second largest fund in the unit trust industry, the fund boasts an Assets Under Management (AUM) figure of Rs. 32.6 billion as at 31 March.

Positioned as one of the ‘big three rating agencies’ along with Moody’s and Standard & Poor’s, Fitch Ratings issues a suitable credit rating after considering liquidity, asset quality, client and issuer exposure- among other things.

An ‘A’ rating by Fitch denotes high credit quality, with low expectations of default risk and strong capacity for meeting financial commitments. This rating can be considered a mark of assurance for the industry as a whole, as Sri Lankan businesses adapt to operate in the backdrop of the global COVID pandemic. Independent ratings are valued by local and foreign investors alike, as they allow for easy comparison of risk between investment opportunities.

The CAL Investment Grade Fund led the way in obtaining the first independent rating in the industry from ICRA Lanka Ltd. – a division of Moody’s. Operating in a highly-competitive local unit trust industry, the CAL Investment Grade Fund is now a double-rated fund.

“In also getting rated by Fitch, a global rating firm, we are now able to offer our valued investors even more security and visibility into the high credit quality we have been able to secure as a fund. The ‘A’ rating by Fitch is a strong endorsement of our excellent credit evaluation process,” CAL Investments CEO Kanishke Mannakkara said.

The unit trust industry as a whole is licensed and regulated by the Securities and Exchange Commission of Sri Lanka (SEC) while each fund is monitored by a licensed bank appointed as trustee. With these safety measures in place, unit trusts are a popular investment vehicle for investors globally. As a financial investment, it is able to offer professional financial management with diversification benefits and short-term liquidity at attractive returns compared to traditional investments, such as bank fixed deposits.

In India, where the unit trust industry, known there as mutual funds, is mature, AUM in the industry as a whole topped INR 32 trillion in March 2021, amounting to nearly 30% of the size of total banking sector assets in the economy. The unit trust industry in Sri Lanka has grown by over 100% over the past 12 months, increasing from Rs. 108 billion in AUM in March 2020 to Rs. 221 billion in March 2021, according to the Unit Trust Association of Sri Lanka.

This growth has been propelled by corporate interest as well as financially savvy retail investors. Investors value the ability to easily convert their investments to cash and reap attractive returns in a subdued fixed income rate environment.

According to the performance report published by the Unit Trust Association Sri Lanka in the first quarter of 2021, the five largest funds, all with AUM over Rs. 10 billion offered an annualised return ranging from 5.90% by the NDB Wealth Money Plus Fund to 7.91% by the CAL Income Fund.

(FT)