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First finance company PIE fund

UDC is the first finance company to roll out new products under the Portfolio Investment Entity tax rules. It's two offerings are a term fund and a cash one.

Sunday, April 27th 2008, 8:33PM
UDC is the first finance company in New Zealand to roll out PIE-compliant funds. It has launched one which offers investors 12 month terms and the other is a cash fund.

UDC head of finance and investments, Bruce Andeerson, says once the company got its head around the new tax rules, making the funds was not too difficult.

He guesses that UDC could be the first finance company to offer a PIE fund as others are "distracted by other issues."

The term fund, known as the Maximiser, offers 12-month terms, however investments can only be made on the first of each month.

Its opening rate is 9%, which equates to an equivalent of 10.68% for people on 39% tax rates.

Anderson says the funds appeal to various audiences, however he thinks that they suit advisers, rather than being sold directly to investors.

He says they require a little more explaining than a traditional term deposit or finance company debenture.

"Ideally they will be sold on a face-to-face conversation."

He says the fund competes with finance companies and term deposits as well as the cash PIEs being promoted by banks at present.

His view is that the Maximiser fund has an advantage in that its return is known and is set at a fixed rate for 12 months. Cash PIEs, he says, don't offer certainty of returns and their rates will fluctuate.

UDC has a cash PIE too which is offering a rate of 8.25%. Both funds invest in UDC debentures. While the PIE funds don't have a Standard and Poor's rating UDC does.

What is it called and what sort of savings product is it?
UDC Finance's Term Maximiser Fund is a managed fund under the new portfolio investment entity (PIE) tax rules.

What is the company behind it?
UDC is a subsidiary of the ANZ National Bank. It is New Zealand's largest finance company, and lends solely on plant and machinery.

Who is the target market?
UDC says it suits people in retirement, nearing retirement or saving for a particular goal.

What return does it offer?
Its opening rate is 9% annually, with interest paid quarterly. For investors on a 39% marginal tax rate, this is the equivalent of 10.68% under the PIE regime.

When was it launched?
April 9.

What other products is it like or is it competing with?
UDC says its Term Maximiser Fund takes on all-comers, including term deposits and other finance company offerings.

Is it long term, short term or medium term?
Investments are made for a 12-month term, beginning on the first of each month.

What is the unique selling point of the product?
This is the first PIE-compliant fund from a finance company in New Zealand.

How strong a stomach do you need for it?
Mild. This term fund doesn't have a Standard & Poor's rating. However it invests in UDC's debentures, which have an investment grade AA rating from Standard & Poor's.

What's the hitch?
This is one of those products that doesn't have too many hitches. The main one is getting used to the new language of investing. Instead of making deposits and withdrawals, investors make subscriptions and redemptions. Another minor hitch is that investment terms start only on the first of each month.

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