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Jon Springer
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I write about emerging and frontier markets in Asia. I now primarily contribute work to Forbes Asia. My most recent work and my complete bio can be found on Forbes Asia's site: http://www.forbes.com/sites/jonspringer/ If it is easier, you can find my recent work sorted by country on this... More
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  • Sri Lanka Income Investing: Banking, Fixed Deposits (CDs) And Bonds 0 comments
    Jan 11, 2013 2:32 PM | about stocks: FM, FRN

    By opening a local bank account in Sri Lanka, one can invest in local one year Fixed Deposits which have rates in local currency greater than 12% (I was quoted 14.5% in October 2012). Fixed Deposits are the name used for what other countries also call Certificates of Deposit [CDs].

    To invest both in bank deposits one needs to open a SFIDA (Special Foreign Investment Deposit Account). To invest in bonds, one needs a SIA (Securities Investment Account).

    Notes On Opening A SFIDA

    You will need to fill out some paperwork and open some accounts to start investing in Fixed Deposits.

    • WikiPedia has a surprisingly thorough list of banks in Sri Lanka. You may open your account with any local or foreign owned bank via their offices in Colombo, Sri Lanka (the capital city).
    • SFIDA's have a minimum deposit amount of US$10,000.
    • A copy of your passport.
    • A copy of a bill that shows you are domiciled at your home address.

    Please note that you cannot transfer money between a SFIDA and a SIA (Securities Investment Account). For the trading of equities and UITs, one needs a SIA.

    Additionally, one needs a SFIDA (Special Foreign Investment Deposit Account) in Sri Lanka to invest in fixed deposits directly while to invest in UITs, Sri Lanka's treasury bonds and equities, one needs a SIA (Securities Investment Account). Importantly, one cannot transfer money between SIAs and SFIDAs (i.e. if you had funds in an SIA you wanted to place in a SFIDA, you would have to wire the money out of the country to your home account from the SIA and then send a separate wire back to your SFIDA).

    Notes On Opening a SIA

    You will need to fill out some paperwork and open some accounts to start investing in Government of Sri Lanka Treasury Bills and Bonds as well as listed Corporate Bonds (permitted for foreign investors). The bank you choose to open your account with should guide you through this process and provide you with paper work. You will need:

    • A Securities Investment Account [SIA] with a bank in Sri Lanka. This is a specific type of account for foreigners that allows your investment dollars to flow freely in and out of Sri Lanka.
    • Central Depository System [CDS] paper work that will link your SIA account to your CDS account with your brokerage company.
    • A copy of your passport.
    • A copy of a bill that shows you are domiciled at your home address.
    • To send funds to your SIA at the bank; maintain a minimum amount in the bank account (5000 Sri Lankan rupees, or about $40 currently); and transfer funds from your bank account into your brokerage account(s).


    Please note that you cannot transfer money between a SFIDA and a SIA (Securities Investment Account). For the trading of equities and UITs, one also needs a SIA.

    Notes On Banking Risks

    For a list of banks rated by Sri Lanka's local Fitch Ratings, please consult this list. On it, you will find all banks rated from AAA to B, so that you may feel comfortable with the bank you choose to use for your SIA or SFIDA.

    Notes On Taxes

    There is a 10% withholding tax on fixed deposits (CDs). From January 2013, the Listed Corporate Bond Market may be more attractive as there will be no withholding tax on listed corporate bonds.

    Notes On Currency Risk

    Any investment in the local currency of a country comes with currency risk (that the value of the local currency you are investing in will go down against your home currency). Dulindra Fernando of Ceylon Asset Management feels that the Sri Lankan Rupee is bottoming out after a 20% depreciation in about a year's time. If correct, this would be the other side of currency risk, that one can make compounded gains through an appreciating currency (assuming one also makes gains on one's investment).

    Dilshan Wirasekara from SoftLogic Capital said of the Sri Lanka Rupee in October 2012:

    • he thought the rupee had more room to appreciate as of October 2012
    • he noted the government had tried to stabilize the rupee at 109 rupees to the U.S. dollar
    • the government used reserves to try to stop the rupee's depreciation, then reversed policy and let the rupee float
    • the rupee dropped to 136 rupees to the U.S. dollar
    • there is a belief among many people that the unofficial government targets is 125 rupees to the U.S. dollar
    • for the last 30 years, the average annual depreciation of the Sri Lankan Rupee is 3%, and 2011's depreciation was an anomaly
    • he also noted that for the safety conscious, Sri Lanka has U.S. dollar denominated bonds that pay about 5.8% to 6%.

    (click to enlarge)

    Source: Yahoo Finance, U.S. Dollar Sri Lanka Rupee exchange 1 year chart, as of 25 December 2012.

    (click to enlarge)

    Source: Yahoo Finance, U.S. Dollar Sri Lanka Rupee exchange 5 year chart, as of 25 December 2012.

    Also

    Please see my article on Sri Lanka's brokerages where I discuss further what Dilshan Wirasekara from SoftLogic Capital said, and provide his contact details in the relevant SoftLogic section. He happened to be the only person I met that discussed fixed income opportunities with me, but other brokerages in that article can surely offer fixed income opportunities.

    A Final Note On Risks

    Markets anywhere in the world can be volatile, and readers are advised to independently study this market and assess the risks for themselves before investing.

    Disclosure: I do not have a SFIDA. I do have one bank account in Sri Lanka.

    © Jon Springer. Please contact for the right to copy or reproduce this article.

    Last updated 11 January 2013.

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