Sri Lanka's Ceylon Asset Management targets to raise 500 million rupees in three months for a mutual fund that will invest in the top ten most liquid listed hotel and travel companies in the island.

"We hope to raise about 500 million rupees within the next three months. Out of that 200 million has already been committed by institutional investors," said Dulindra Fernando, the Managing Director of Ceylon Asset Management, the only index fund manger in Sri Lanka.

"We hope to engage in marketing to raise the balance 300 million," he added.

The fund will invest in John Keells Hotels, Aitken Spence Hotels, Asian Hotels and Properties, Taj Lanka Hotels, Ceylon Hotels Corporation, Hotels Services, Royal Palm Beach Hotels, Amaya Leisure, Light House Hotel and The Fortress Resort, all listed firms which owns and manage hotels and resorts across the island and overseas.

The Ceylon Tourism Fund will be managed as an open ended fund allowing investors to exit at any time and new investors to also enter. It will distribute the tax free returns from profits from the ten companies annually.

The ten stocks capture over 70 percent of market capitalization of listed hotel and tourism companies at the Colombo bourse.

"CSE has liquidity only up to about 10 stocks and the ten we have selected have healthy liquidity," said Fernando.

Sri Lanka's tourism industry is experiencing a boom following the end of a 30 year long civil conflict. Arrivals between January and June have increased 50 percent.

This year the industry is expecting 600,000 arrivals, up from 447,000 last year. Officials are expecting a 40 percent increase in tourist arrivals next year and 2.5 million tourists by 2016.

The hotels and travel sector captures 7.5 percent of the CSE's total market capitalization of 1.5 trillion rupees.

"An investment committee will review the ten stocks every three months and will include other companies which have moved up in liquidity," said Fernando.

The manager of the new fund Ceylon Asset Management is an associate company of Sri Lanka Insurance Corporation and manages two other funds; the 200 million rupee Ceylon Index Fund and the Ceylon Income Fund.

The Ceylon Tourism Fund will open for subscriptions on the 28th of July at which a unit will be offered at an IPO price of 10 rupees. The minimum investment is 10,000 rupees.

Deutsche Bank is the trustee and custodian of the fund.