The Turmoil Test

Mixed Cash & Mortgages Not Worth The Risk

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The most common issue I have discussed with clients recently is the falling interest rate on the SBOSA (select business online saver account ie. the cash holding account which we are not allowed to call a cash management account).

In the current economic climate, GPS has a policy of only holding Investors’ monies in one of the four pillar banks. There was a time when the banks would offer special rates for companies which held several millions of dollars in cash. Unfortunately, those days seem to be gone and I doubt whether the banks would now even shout us a cup of tea.

Recent articles by economists and journalists suggest that due to the increased levels of direct deposit holdings by banks, their increased market share and the reduced lending volume, interest rates for both cash and fixed term deposits will continue to fall.

We have researched the idea of establishing a new fund which is a mixture of cash and mortgages, however, our legal, accounting and compliance advice is to “concentrate our efforts elsewhere”.

It seems that the ASIC has such cash and mortgages schemes firmly in their cross hairs. In order to comply with Benchmark 8 of the incoming Regulatory Guide 45, scheme members will only be allowed to withdraw monies “at any time” if at least 80% (by value) of the scheme property is on deposit with a bank. It is not viable to establish a cash and mortgages fund if we would be limited to holding only 20% of the minimum value of the fund in mortgages because operating and compliance costs would negate any increased return.

Disclosure levels would also be an issue as ASIC has made it clear that the current practise of promoting a withdrawal period and then noting in the fine print that it may be a longer period, or that there are conditions, will be considered by ASIC to be misleading.

The implications of intervention by ASIC could be devastating to any fund because Investors’ cash and monies held to pay progress draws may be frozen. If progress draws are not paid then construction work on funded projects may cease, and this would prejudice the investment.

Therefore, we have concluded that operating a cash and mortgages scheme is considered by GPS to not be worth the risk.

So, we intend to take the advice which has been provided to us and concentrate our efforts on maximising the return rate for GPS Invest Pooled Fund.

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