RaboDirect Managed Funds 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).

A Portfolio Investment Entity ("PIE") is a special tax investment entity type for which a managed fund can apply.

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.

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

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.

In the 2007 Budget, the Government announced a reduction of the company tax rate from 33% to 30%. The Government also announced that the top tax rate for PIEs, along with the tax rate for most unit trusts and superannuation funds, reduced from 33% to 30%. In October 2010, the rate droped further to 28%. The benefit for individuals will mean a lower tax rate on their investment and retirement savings and a more consistent tax treatment for different types of managed funds.

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

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.
  

Tax is only due on units held at the end of the tax year; tax due on previously held units is deducted at the time of their sale.

The introduction of the new PIE tax regime on October 1 2007 changed the way that tax is paid on PIE managed funds. Prior to the tax regime, tax was paid by the fund and then sent directly to the Inland Revenue Department. Under the new PIE regime tax is calculated at the investors elected tax rate. RaboDirect will deduct the tax payable from your account and pay this to the IRD on your behalf at the end of the tax year.

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

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).