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The Ceylon Money Market Fund closed 21 May 2026 with an annualized return of 9.12 percent, net of withholding tax, according to performance data compiled by the Unit Trust Association of Sri Lanka. That figure sat comfortably above the 8.51 percent average weighted fixed deposit rate the Central Bank of Sri Lanka was tracking around the same window.
For years the comparison ran the other way. Bank counters offered a known number, a government-backed insurance scheme, and a queue of relatives who had always done it that way. Unit trusts felt like something for people with a Bloomberg terminal.
That gap has narrowed enough, and in some cases inverted enough, that ordinary savers in Colombo, Kandy and Kurunegala are asking a version of the same question: if a money market fund can pay more than the bank down the road, why is the money still sitting in a fixed deposit.
The honest answer involves rates, tax rules that just changed, and a risk trade-off that rarely makes it into the marketing copy.
Start here
The short version
- 01Sri Lanka's leading money market unit trusts are outyielding the average bank fixed deposit rate in 2026, a shift driven by how each product reprices to Central Bank policy. New withholding tax rules and a proposed capital gains increase for unit trusts complicate the after-tax p
- 02Ceylon Asset Management's flagship fund did not sneak up on the market.
- 03Sri Lanka's monetary policy path explains most of the story.
Method, source and disclosure
This analysis is prepared by the Market Lens desk from the sources named in the story and publicly available market information. Material revisions appear in the updated timestamp.
View primary source ↗The Rate Gap Nobody Advertised
Ceylon Asset Management's flagship fund did not sneak up on the market. It was already ranked the country's best-performing money market fund when it posted that 9.12 percent net figure in May.
The fund picked up an "A" rating with a stable outlook from the Lanka Rating Agency around the same period, a nod to its bias toward capital preservation over reaching for yield.
Compare that with the fixed deposit side of the ledger. DepositLK's rate tracker put the market-wide average weighted fixed deposit rate at roughly 8.51 percent as of 2026, with the Central Bank's policy stance sitting close by.
Individual banks can still beat that average. Seylan Bank was advertising 11.5 percent on a 24-month tenor as of early July 2026, and Bank of Ceylon has run senior-citizen specials north of 11 percent.
So the "money market funds beat FDs" headline is true on average, not universally. A saver willing to lock cash away for two years at a promotional rate can still out-earn a floating-rate fund.
What has changed is that the average outcome, the one most people actually get when they roll a one-year FD without shopping around, is no longer the automatic winner.
The mechanics matter here. A fixed deposit rate is fixed for its term, set the day you sign, while a money market fund's yield floats daily with the short-term government securities, repos, and high-grade commercial paper it holds.
When the Central Bank eases, FD rates opened months earlier keep paying the old, higher number until maturity, while fund yields drift down in near real time. The reverse is also true, which is the dynamic behind the current gap.
Consider a saver who opened a one-year FD in early 2025, when banks were still competing hard for deposits after the post-crisis rate spikes of prior years. That deposit is still paying its original coupon today, largely untouched by anything the Central Bank has done since.
A money market fund purchased on the same day has already repriced through several policy reviews, capturing the rate moves of 2025 on the way down and now sitting closer to the current plateau than any twelve-month bank product locked in the year before could manage.
Context
Why Money-Market Yields Pulled Ahead
Sri Lanka's monetary policy path explains most of the story. The Central Bank has held its benchmark Overnight Policy Rate at 7.75 percent through its March and May 2026 reviews, with inflation running at just 1.6 percent in February, well under the five percent target.
The Standing Deposit and Standing Lending Facility rates, the corridor around that benchmark, sat at 8.25 percent and 9.25 percent respectively as of mid-2026.
Banks do not reprice existing fixed deposits when policy holds steady or shifts modestly. A one-year FD booked in late 2025, when the corridor was tighter and competition for deposits was fiercer, is still paying its original rate today regardless of where the market has drifted since.
Money market funds carry no such lag, since their underlying treasury bills and repos roll over every 91 to 364 days and reprice close to the prevailing short end of the yield curve.
There is also a structural funding story. Banks compete for deposits partly to fund loan books, and when credit demand softens, so does their urgency to chase savers with sharper FD rates.
Fund managers, by contrast, are simply passing through whatever the government securities market is paying, minus a management fee that typically runs a few tenths of a percent.
None of this means money market funds will keep winning indefinitely. If the Central Bank's next review, due 22 July 2026, signals a cutting cycle, fund yields would likely soften faster than the FD rates banks have already locked in on their books.
Government financing needs add another layer. Treasury bill and bond issuance drives much of the supply that money market funds buy into, and when the state's short-term borrowing appetite is heavy, yields on those instruments tend to stay firmer for longer.
Banks, meanwhile, answer to a different set of pressures, including capital adequacy rules and loan growth targets, that do not always move in step with the government securities market.
Comparison
Money Market Funds vs Fixed Deposits, Side by Side
Stripped of marketing language, the two products solve different problems and carry different guarantees. A side-by-side view helps more than another paragraph of adjectives.
| Feature | Money Market Unit Trust | Bank Fixed Deposit |
|---|---|---|
| Typical 2026 return | Around 8.5% to 9.1% p.a., variable | Around 8.0% to 11.5% p.a., fixed for term |
| Rate movement | Reprices near-daily with short-term rates | Fixed until maturity |
| Government insurance | None | Up to Rs. 1,100,000 per depositor, per institution |
| Liquidity | Typically 1 to 2 business days, some ATM access | Penalty of roughly 1 to 2 points for early withdrawal |
| Minimum entry | As low as Rs. 1,000 | Varies, often Rs. 5,000 to Rs. 25,000 |
| Withholding tax | 10% on interest income | 10% on interest income, effective 1 April 2026 |
| Tax timing | On realized earnings at redemption | On interest as it accrues |
The insurance point deserves its own sentence. Fixed deposits up to Rs. 1,100,000 per depositor per institution are covered by the Sri Lanka Deposit Insurance and Liquidity Support Scheme.
Unit trusts carry no equivalent government backstop. If the underlying issuers of a fund's commercial paper or corporate debt default, investors absorb that loss directly, which is precisely why funds like Ceylon's and CAL's lean toward government securities and top-rated paper rather than reaching into riskier corporate credit for an extra point of yield.
Liquidity cuts the other way. A fixed deposit broken early typically costs the saver one to two percentage points of interest as a penalty.
Most open-ended money market unit trusts settle redemptions within a day or two, and some, including First Capital's Money Plus Fund, allow ATM-based withdrawals, a meaningfully different proposition for anyone who might need the cash on short notice.
Market data
The Tax Change That Could Flip the Math
Any comparison built on gross or even net-of-management-fee yield misses the part that actually lands in an investor's account. 2026 has brought two tax changes worth flagging before anyone reallocates a rupee.
First, withholding tax on bank deposit interest rose from 5 percent to 10 percent for resident individuals effective 1 April 2026, following amendments certified in March 2026.
Savers who had grown used to a 5 percent bite on FD interest are now losing twice that at source, unless they qualify for one of the narrow self-declaration exemptions for people with no taxable income.
Second, and more consequential for the unit trust side of this comparison, the Inland Revenue Amendment Bill published on 24 February 2026 proposes raising the capital gains tax rate applicable to trusts, unit trusts, mutual funds and NGOs from 10 percent to 30 percent.
That proposal has not yet been enacted or certified by the Speaker, so it is not current law. If it passes in anything close to its published form, it would materially change the after-tax comparison for fund investors who realize gains rather than simply earning accrued interest.
It is worth separating the two tax lines that already apply to unit trusts today. Fixed deposits and unit trust interest income are both currently subject to withholding tax, and both face additional income tax on top of that.
The practical difference is timing: unit trust holders are taxed on realized earnings at redemption, while FD holders are taxed as interest accrues, whether or not they have touched the money.
That timing gap has been part of the appeal of money market funds for tax-aware savers, and it is exactly the gap the proposed capital gains change could narrow.
Anyone modeling this out for their own savings should treat the 30 percent proposal as a scenario to watch rather than a number to plan around today. Amendment bills in Sri Lanka have historically been revised between publication and enactment.
What is certain is the 10 percent withholding tax on interest, already in force since April, which quietly narrowed the after-tax gap between the two products on the FD side even before the fund industry's tax treatment enters the conversation.
Who Is Actually Making the Switch
The retail shift behind this story is not hypothetical. Established players like First Capital describe a base of more than 100,000 Sri Lankan unit holders built over four decades.
Newer entrants including Senfin Asset Management, CAL and Ceylon Asset Management have all expanded their money market offerings with minimum entry points as low as Rs. 1,000, a threshold that puts them within reach of savers who might once have defaulted straight to a bank counter.
That low minimum matters more than it sounds. A young professional or a small business owner parking short-term working capital no longer needs Rs. 100,000 or more to access a professionally managed, diversified pool of government securities and high-grade paper.
They can start with the price of a modest phone accessory and add to the position as cash allows.
The profile of the switcher tends to skew toward people who already have a fixed deposit habit but have started comparing net-of-tax numbers rather than accepting whatever a teller quotes.
Financial advisors and asset managers describe growing interest from small and medium enterprises parking treasury cash between payment cycles, where same-day or next-day liquidity outweighs the marginal extra yield a locked FD might offer.
What has not materialized, at least not yet, is a wholesale abandonment of fixed deposits by risk-averse retirees. Senior citizens who value the explicit deposit insurance ceiling and the psychological comfort of a fixed, guaranteed number still make up a large share of FD balances.
Several banks continue to run senior-specific promotional rates specifically to hold onto that segment.
Corporate treasurers tell a slightly different story. A business holding cash for payroll, supplier payments or an upcoming tax installment cares less about squeezing out an extra fraction of a percent and more about not being trapped in a term deposit when an invoice comes due early.
For that use case, a same-day or next-day redemption window is worth more than a marginally higher locked-in rate, which explains why fund managers increasingly pitch money market products as a working-capital tool rather than purely a savings product.
What comes next
What to Watch Before the Next Rate Decision
The Central Bank's next monetary policy review, scheduled for 22 July 2026, is the nearest catalyst. Markets currently expect the Overnight Policy Rate to hold near 7.75 percent, but any signal toward easing later in the year would start compressing money market fund yields before it touches the fixed deposit rates banks have already locked in.
The Inland Revenue Amendment Bill is the second item worth tracking closely. Its capital gains provisions, including the proposed jump from 10 percent to 30 percent for unit trusts, only take legal effect once Parliament enacts the bill and the Speaker certifies it.
Until then, the current 10 percent regime holds, and any investor decision built on the higher rate would be premature.
Third, watch the average weighted fixed deposit rate itself. It is a lagging number by construction, since it blends new and existing deposits across the banking system, so a sustained move in either direction takes months to show up fully.
A widening or narrowing of the roughly 60 basis point gap between the 9.12 percent top money market fund return and the 8.51 percent system average FD rate will say more about where retail savings are actually headed than any single bank's promotional poster rate.
Finally, keep an eye on credit quality inside the funds themselves. The funds currently topping the performance tables have done so by leaning toward government securities and top-tier corporate paper rather than reaching for yield in weaker credits.
That discipline is a big part of why regulators and rating agencies have been comfortable with their growth, and it is the first thing worth checking before comparing any fund's headline number against a bank's fixed deposit board.