The full guide
Money market funds in Sri Lanka — a smarter home for short-term cash?
Reviewed and updated July 16, 2026 · Written for Sri Lankan investors and borrowers
Most Sri Lankans park short-term cash in an ordinary savings account, where it usually earns one of the lowest rates in the market. Money market funds — unit trusts that invest in Treasury bills, repos, and short-term bank deposits — are the middle ground: better yields than a savings account, daily or near-daily liquidity that an FD cannot match, and professional management of the underlying instruments.
This guide explains how these funds work, how to read their published yields correctly, what fees to look for, and when a money market fund beats — or loses to — a savings account or a fixed deposit.
What a money market unit trust actually holds
A money market fund pools investors’ money and buys short-dated, low-risk instruments: government Treasury bills, repurchase agreements backed by government securities, and deposits with licensed banks. Funds that invest predominantly in government securities are often marketed as gilt-edged or T-bill backed funds. Unit trusts in Sri Lanka are regulated by the Securities and Exchange Commission and managed by licensed fund management companies, with a separate trustee holding the assets.
Unlike an FD, the return is not contractual — the fund’s yield floats with short-term market rates. That is a feature as much as a risk: when Treasury bill yields rise, the fund’s yield follows within weeks, whereas an FD locks you into yesterday’s rate.
Nominal yield vs APY — read the fine print
Fund fact sheets typically publish an annualized yield based on recent performance. Because money market funds effectively compound daily — each day’s income increases the unit price or your unit balance — a nominal annualized figure understates what you earn over a full year. An 8% nominal yield compounded daily works out to an effective annual yield of roughly 8.33%.
When you compare a fund against an FD, compare effective annual yields on both sides, and remember the fund’s published yield is historical, not promised. The calculator above lets you enter a yield and a holding period to estimate growth — as an illustration, Rs. 500,000 held for 90 days at an 8% annualized net yield earns about Rs. 9,863.
Fees: the quiet drag on your return
Money market funds charge an annual management fee plus trustee and custodian fees, usually totalling well under 1% per year, deducted inside the fund before the yield you see. Most money market funds have no front-end or exit fee, but always check: an exit fee on early withdrawal destroys the liquidity advantage that justifies the product. Published yields are generally net of fees, but confirm this in the fact sheet before comparing against an FD rate, which is quoted gross.
Money market fund vs savings account vs FD
Each of the three homes for short-term cash trades off yield, access, and certainty differently. The right answer is usually a combination, not a single product.
| Feature | Savings account | Money market fund | Fixed deposit |
|---|---|---|---|
| Typical yield | Lowest | Between savings and FD, floats with market | Highest for the tenor, fixed |
| Access to money | Instant | Usually 1–2 business days | Locked until maturity, penalty to break |
| Return certainty | Rate can change anytime | Floats daily with market rates | Contractual for the full tenor |
| Best used for | Day-to-day float | Emergency fund, cash awaiting deployment | Money you will not touch for the tenor |
Tax and practical considerations
Tax treatment of unit trust income differs from bank interest and has changed several times in recent years — check the fund’s fact sheet and the Inland Revenue Department’s current guidance for how distributions and gains are treated for a resident individual, and factor that into any comparison with an FD, where a 10% advance income tax applies to interest under current rules.
Practically: choose funds from established managers, favour funds holding mostly government securities if safety is the priority, and read the fund’s duration and credit profile in the fact sheet. Yields change constantly, so treat any figure you enter in the calculator as a snapshot — and revisit the comparison when short-term rates move.
A sensible default for many savers is to keep a month of expenses in a savings account for instant access, hold the emergency fund and any cash awaiting a decision in a money market fund, and lock genuinely idle money into FDs — checking our live FD rates page at /fd-rates for current tenor rates before committing. That structure captures most of the available yield without ever leaving you short of accessible cash.
Sources & further reading
This guide is educational and reflects publicly available rules and market conventions at the review date. Tax rates, bank rates, and regulations change — verify current figures with the institution or the Inland Revenue Department before making a financial decision. Nothing here is financial, tax, or investment advice.