RaboDirect Cash Advantage Fund - PIE Frequently Asked Questions

The Cash Advantage Fund (CAF) is a Managed Fund. A Managed Fund is simply a pooled investment with many investors. The CAF is specifically designed to operate in a similar nature to a traditional On-Call Savings Account. It only invests in deposits with Rabobank NZ; there are no fees and interest compounds daily*.

The CAF is also a Portfolio Investment Entity (PIE). The PIE tax regime is designed to encourage people to engage in long-term saving and investing, with a primary focus on Managed Funds/Unit Trusts; using the favourable tax rules as the incentive.

Working with AMP Capital Investors we looked at how we could bring these tax benefits to our customers, while retaining some of the key features of our On Call deposit account (no fees, ready access to your money etc). Hence the creation of the Cash Advantage Fund, the first cash PIE launched in NZ. The CAF has been awarded Best New Product at the coveted Sunday Star Times Cannex 2008 Banking Awards.

* Interest on the Fund's deposit compounds daily on Tuesday, Wednesday, Thursday and Friday. On Monday, three days' interest compounds (for Friday, Saturday and Sunday).

Here's how you can benefit from this unique product: 

• Tax capped at 28%
• Minimum deposit, only $250
• No fees
• Funds on-call
• High interest
• Tax paid annually
• Interest compounds daily*
• Funds deposited with Rabobank

* Interest on the Fund's deposit compounds daily on Tuesday, Wednesday, Thursday and Friday. On Monday, three days' interest compounds (for Friday, Saturday and Sunday).

Already a customer?

Step 1: Purchase funds

• Log-in to your account.
• Click on "Managed Funds", then "Purchase".
• Click on "Buy" next to the "Cash Advantage Fund".

Please note: Before you can purchase managed funds your money needs to be cleared and in one of your RaboDirect call accounts; it will take 2-3 business days to clear once we receive it.

The first time you purchase funds you may be prompted to open a managed fund account (if you did not request to do so when you opened your On-Call Account).

Step 2: Processing

At 12:30pm on every business day RaboDirect sends all orders to AMP Capital Investors for processing. Therefore, if you purchase funds after 12:30pm your order will not be sent until the following business day. Your account is usually updated with your unit holdings the same night with the purchase amount being deducted from your RaboDirect savings account at the same time

New to RaboDirect?
If you're not yet a customer, you'll need to apply online and open a Master Savings Account. When your account is set up, login in and follow the steps above.

To withdraw funds from the Cash Advantage Fund you need to specify how many units you wish to sell.

To do this log in to your account and click "Managed Funds", then "Contents". This will display the contents of your managed fund account. From there you can select the fund you wish to sell and click the "Sell" button. You will then be prompted with a screen that will allow you to select how many units you wish to sell.

Once you have confirmed the transaction using your Digipass your request will then be sent to the fund manager. These requests are sent at 12.30pm each business day with the proceeds from the sale usually in your RaboDirect on call account by 5-6pm that night.

Note that if you arrange a sale of units after 12.30pm on a business day, the request will be sent at 12.30pm on the following business day.

The unit price does not include any fees or commission. The unit price for the Cash Advantage Fund has been continuously rising since its inception due to the accrual of interest. Therefore, due to no entry or exit fees being charged, the increase in the unit price is a direct reflection of the interest earned by the investors in the fund.

For example, if you purchase $1,000 worth of units for $2.50 each you only receive 400 units. However, it is your $1,000 that is invested into the fund that begins to earn interest for you. Let us say that the unit price then increases to $2.70 over the next year. The unit price increase of 20 cents is the interest you have earned on your $1,000 investment and your 400 units are now worth $1,080 (before tax). So, the number of units you hold has no effect on your return.

There are various parties involved with the Cash Advantage Fund, each with specific roles (this information is also provided in greater detail in the Investment Statement for this fund).

• Manager (AMP Investment Management (NZ) Limited) - Licensed entity responsible for the management and operation of the Unit Trust.

• Investment Manager (AMP Capital Investors (New Zealand) Limited) - Responsible for developing the investment strategy, setting the investment objectives and making the ongoing decisions relating to the asset allocation of the fund.

• Promoter (AMP Capital Investors (New Zealand) Limited and Rabobank New Zealand Limited) - The Issuer, sponsor and/or distributor of the fund.

• Trustee/Custodian (The New Zealand Guardian Trust Company Limited) - Legal entity fulfilling the fiduciary and prudential responsibilities for unit holders as outlined by the trust Deed and is responsible for the safe custody of the assets of the fund.

• Administrator (BNP Paribas Fund Services Australasia Pty Ltd - operating as BNP Paribas Security Services) - Appointed by the Investment Manager / Manager and is responsible for the administration on behalf of unit holders / investors.

Default Risk

In the unlikely event that AMP Capital went into administration, since fund assets are held separately to the assets of AMP Capital, in trust with the Trustee, the Trustee would firstly appoint another Manager in replacement of AMP Capital.

Importantly, this means that AMP Capital has no recourse to the assets of the fund and they cannot wind back the assets of the fund or deduct fees from the fund to cover the costs of the rest of the business.

In this instance, the role of the Trustee/Custodian is crucial, as they hold the assets and units of the fund on a segregated basis and independent to the Investment Manager, Manager and/or Promoter.

However, just like investing into any other fund, you are inherently taking on the risk of the ultimate underlying asset - in this case the deposit of the fund with Rabobank Nederland (New Zealand Branch).

As a unit holder in the fund, you will always have an entitlement to the value of your investment (number of units you hold times the applicable unit price).

The Portfolio Investment Entity ("PIE") regime is a new regime for taxation of PIE managed funds. The PIE's income is attributed to its investors, based on their shares of the PIE, and is taxed at each investor's prescribed investor rate ("PIR"). The PIE regime creates tax advantages for many PIE investors, mainly because the maximum PIR is 28%. The PIE regime therefore provides tasty tax benefits to investors who are on a 33% or 30% tax rate and invest in a PIE, such as our Cash Advantage Fund.

For PIE Managed Funds tax will be debited in two instances:

1. On the sale of units.
   When units are sold from a PIE managed fund, the accrued tax liability (for the existing tax year at the time of the sale) for those units is automatically deducted from the proceeds of the sale. 

2. At the end of the tax year.
   At the end of the tax year RaboDirect will automatically deduct any outstanding tax liability payable from your account and pay this to the IRD on your behalf.

The process works as follows:

RaboDirect will simply debit or credit your Master Savings Account depending on your overall tax position (calculated on a per fund basis and credited or debited as a single figure).

Tax Rebates

Where a rebate exists we will credit this to your RaboDirect Master Savings Account (MSA).

Tax Liability

For a tax liability we will apply the following steps:

• Your RaboDirect Master Savings Account (MSA) will be debited for the amount of the liability.

• If insufficient funds are available your account will be overdrawn and we will contact you to arrange an account top-up. Please note that no fees will be charged if your account becomes overdrawn. 

• If we are unable to contact you we will sell down sufficient units in the relevant fund(s) to meet your tax liability and thus cover the overdraft.
  

An investor's prescribed investor rate (PIR) is similar to an individual's Resident Withholding Tax rate, although there is a key difference - the top rate for PIR is 28%. The PIR is the rate at which an investor's taxable income in a PIE will be taxed. RaboDirect is obliged to use the default PIR for individuals unless you elect one of the lower rates of 10.5% or 17.5%. As a Trust, company or incorporated society your PIR will be 0% as you file a tax return. Trusts however may elect a PIR of 17.5% or 28%.

If in one of the last two financial years your taxable income was $14,000 or less and when combined with the income from your PIE investments your total income was $48,000 or less, then all of your PIE income will be taxed at 10.5%.

Or if in one of the last two financial years your taxable income was between $14,000 and $48,000 and when combined with the income from your PIE investments your total income was $70,000 or less, then your PIE tax income will be taxed at 17.5%.

If in both of the last two financial years your taxable income was more than $48,000 or, when combined with the income from your PIE investments your total income was more than $70,000 your PIE tax income will be taxed at 28%. 

This is a considerable advantage for investors in the 30% and 33% tax bracket as they are paying only 28% tax on their PIE income.

You can elect your correct PIR rate via our online banking site.

For further assistance in calculating your PIR there is guidance on the IRD's website: www.ird.govt.nz

You can change your PIR rate at any time by logging in to your account and clicking "Tax", then "Change tax details".

The Regular Investor Plan allows you to create a regular ordering process for purchasing the Cash Advantage Fund (and other funds if you want to add them to your plan). This means you don't have the hassle of making manual purchases all the time.

1. Set up an account
   If you don't have an account already, you'll need to open a RaboDirect Savings Account. Open an account here.
   Existing Customers
   Log in to your account, click on the 'Managed Funds' menu option, select 'Regular Investor Plan'. Follow the simple instructions.
2. Choose an account name
   Name your Regular Investor Plan name e.g. Early Retirement, Dream holiday, New Sports Car.....you get the idea.
3. Choose the investment frequency
   Decide how often you'd like to invest e.g. weekly, fortnightly, monthly, quarterly, 6 monthly or annually.
4. Choose a start date     
   Set the date from which you'd like to start investing.
5. Choose the RaboDirect Savings Account to fund your Regular Investor Plan
   Remember, you'll need a sufficient amount of money in your RaboDirect Savings Account to feed you Regular Managed Funds Investor Plan.
6. Choose your regular investment amount 
   Decide how much you'd like to invest on a regular basis.
7. Choose the Cash Advantage Fund as the fund you would like to invest in
   Note: You can also select other Managed Funds to invest in if you would like to. For example it might be 100% in a single fund, or 50% in two different funds. You can split your amount anyway you like.
   

The minimum amount for a plan is $250.

Yes, you may choose to include any number of funds from our existing range and add them to your plan. Remembering that if you have 2 funds your plan will be a minimum of $500 ($250 per fund), having 5 Funds would be a minimum of $1250 and so on.

Your plan consists of a regular order executed on a frequency of your choice. When you invest in any of our Managed Funds the entry fee is deducted from the amount invested.
Note: The Cash Advantage Fund has a 0% entry fee.

Yes, you are free to make changes or simply cancel your Regular Investor Plan at any time. Remember, you must make any changes or cancellation at least one business day before your Regular Investor Plan is next due.

We will try up to 3 times (over 3 days) to complete the transaction.  If it is still unsuccessful due to insufficient funds your Plan will not take place until the next frequency date.

If you are regularly transferring funds into your Master Account, we recommend you set your Regular Investor Plan 3 business days after the funds reach your Master Account to ensure that they are cleared.