ISI wants guarantee scheme extended

The Investment Savings and Insurance Association is seeking to get the government’s deposit guarantee scheme extended.

Thursday, November 6th 2008, 6:32AM
It believes that there are sound reasons to support controlled and Reserve Bank monitored extensions to the scheme.

The ISI is recommending that retail investors should be treated equally whether they invest directly into guaranteed investments of a bank or finance company or into the same investments through a managed fund. The industry is seeking the extension in respect of the ‘guarantee deposit component’ of a managed fund.

“We believe that applying a ‘look through’ approach that provides greater equity of treatment and would mitigate some of the damage to the funds management industry caused by the comparative advantage being introduced by the scheme,” ISI chief executive Vance Arkinstall says.

“The $1 million cap per investor contained within the scheme would apply under the extension we are seeking”, he says.

“We are also proposing that it may be possible to extend the Deposit scheme for certain mortgage funds.

“It seems a strange ‘quirk’ that mortgage funds based on conservative valuations and which provide income only could not be included”, Arkinstall said.

The ISI “clearly accept” that equity based funds and those where the unit value fluctuates according to movements in the underlying assets should not be subject to any guarantee cover.

“The industry supports the need for the introduction of the scheme and recognises that such schemes create inevitable distortions. However, we do believe that limited and carefully controlled extensions can preserve the integrity of the scheme and go a large way to mitigate some of the risks that it creates for savers and managed funds, which include KiwiSaver funds.”

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