Summary
When people compare income funds, they often focus on the rate. But the questions that matter most are frequently practical ones: How quickly can I access my money? How often is income paid? What happens if I need funds earlier than expected?
These details can determine whether an investment suits a particular situation, and they are often harder to find than the headline rate. This article explains how the mechanics generally work, using the La Trobe Australian Credit Fund as a worked example. Specifics differ between managers, and the only reliable source is each fund’s own documents.
Notice Periods and Fixed Terms Are Different Things
A notice period generally means your money is not locked away, though it does not come back instantly either. You tell the manager you want to withdraw, and the clock starts. A fixed term means the money is committed until the term ends.
They tend to suit different purposes. A notice account may suit money you expect to need at some point but cannot name a date for. A fixed term may suit money you are reasonably confident you will not need until a known date.
Income funds generally offer either notice-based investments, fixed-term investments, or investments linked to specific underlying assets. The La Trobe Australian Credit Fund includes examples of each structure., The Notice accounts are the Classic Notice Account at two business days, the 90 Day Notice Account at 90 days and the 6 Month Notice Account at 180 days. The fixed-term accounts are the 12 Month, 2 Year and 4 Year Investment Accounts.# The Select Investment Account works differently again, since the investor chooses the individual mortgage and the term follows that investment.
What “Access Within 90 Days” Actually Means
Many investors assume an advertised withdrawal timeframe is a guarantee. In reality, managed funds typically distinguish between a target withdrawal timeframe and the maximum period permitted under the fund’s constitution.
When comparing income funds, investors should understand both. The advertised timeframe describes the manager’s intention. The constitution sets out the legal framework that applies if liquidity conditions change.
We will make every endeavour to release your funds after receiving your redemption request within two business days for the Classic Notice Account, 90 days for the 90 Day Notice Account and 180 days for the 6 Month Notice Account. However, we have 12 months under the Fund’s Constitution to fulfil the request. When determining whether to honour a redemption request within the specified timeframes, we must consider the Fund’s cash position and the best interests of all investors. Withdrawal rights are subject to liquidity and may be delayed or suspended. We note that across the history of the Fund, we have not needed to rely on additional time to meet the notice periods of each account.
A similar principle generally applies to funds of this kind. There is an advertised timeframe, and there is a maximum period permitted under the constitution. When comparing funds, it is worth asking for both. The second is generally the one that binds.
Minimum Investment Amounts
| Investment product | Minimum |
| Classic Notice Account | $1 |
| 90 Day Notice Account | $1 |
| 6 Month Notice Account | $1 |
| 12 Month Investment Account | $1 |
| 2 Year Investment Account | $1 |
| 4 Year Investment Account | $250,000 |
| Select Investment Account | $1,000 |
Minimum investment amounts can influence diversification decisions. An account requiring a larger minimum investment may result in more capital being allocated to a single investment strategy than originally intended.
Investors should consider the minimum investment alongside liquidity, term and income requirements, rather than viewing it as an administrative detail.
There are no investment entry fees or investment account set-up fees for the Credit Fund. Other fees and costs are disclosed in the Fees and Charges section of the Product Disclosure Statement, which is where fees on any fund are required to be set out. Comparing headline rates without reading the fees section can mean comparing two incomplete numbers.
Withdrawing Early From a Fixed Term
Generally this is not possible, and it is usually prudent to plan on that basis.
The 12 Month Investment Account and 2 Year Investment Account are fixed term investments of 12 months and 2 years respectively, and generally early redemptions are not permitted. We understand unique circumstances occur, and each request for early withdrawal is reviewed and considered subject to the liquidity rules of the Credit Fund and at La Trobe Financial’s discretion. If an early withdrawal is approved, an early withdrawal fee may be charged.
The Select Investment Account is treated as a fixed term investment for the duration identified in the Supplementary Product Disclosure Statement, and La Trobe Financial is under no obligation to process a withdrawal request during the agreed term.
The practical implication is that money which might be needed at short notice is generally not well suited to a fixed-term account, however attractive the return looks.
How and When Income Is Paid
For the pooled accounts, being the Classic Notice, 90 Day Notice, 6 Month Notice, 12 Month, 2 Year and 4 Year Investment Accounts, investment returns are determined and paid monthly. They are paid as you direct, either into your nominated financial institution account or reinvested. Returns for the Select Investment Account are paid according to the individual mortgage chosen, usually monthly.
Rates of return are reviewed and determined monthly and may increase or decrease each month. The rate applicable for a given month is paid at the start of the following month. Rates of return are not guaranteed, are determined by the future revenue of the Credit Fund, and may be lower than expected.
For a retiree funding living costs, the monthly rhythm can matter as much as the level. Income arriving monthly may suit a monthly budget in a way quarterly distributions do not.
Reinvesting Income
Returns can be reinvested in the Classic Notice, 90 Day Notice, 6 Month Notice, 12 Month or 2 Year Investment Accounts if you direct it. Income can only be reinvested in the 2 Year Investment Account if you already hold an investment in that account. Returns reinvested in the 12 Month Investment Account may be withdrawn where a written withdrawal request providing 30 days’ notice has been given.
Reinvestment is generally worth a deliberate decision rather than a default. An investor drawing on income for living costs will usually need income paid out. An investor still accumulating may prefer it compounding.
Can You Add to Your Investment?
Many income funds allow additional investments after an account has been opened, while others may impose minimum top-up amounts or different requirements for additional contributions.
Investors should check these requirements before investing, particularly if they intend to build their investment over time rather than invest a lump sum upfront.
What Happens if a Loan Falls Into Arrears
Some loans in any lending portfolio are likely to fall behind at some point. What tends to matter more is what the fund does about it, and what the investor sees.
While we expect that some loans will fall into arrears, the Credit Fund aims to continue to distribute an investment return on a monthly basis, and it is our intention to pay a consistent return despite peaks and troughs in receipts of borrowers’ interest payments.
Where a loan is in default and the term has expired, La Trobe Financial generally takes legal action to recover the debt, though in many instances this is not required if a repayment arrangement has been agreed. If the matter extends to legal action, a judgment for possession may be required, after which the property is marketed for sale, and settlement usually takes place between 30 and 90 days. The Asset Management team provides regular written updates on the recovery process, and the monthly Investor Statement details amounts owing.
La Trobe Financial does not guarantee investors’ capital. Arrears and hardship across Credit Fund loans are reported every month in the Credit Fund Investment Snapshot and Portfolio Metrics Update, available on our website.
Reporting and Day to Day Management
Investors receive a monthly Investment Snapshot and Portfolio Metrics Update, Investor Activity Statements, and a Financial Year Income Taxation Statement. Up-to-date information is available at any time on the website, by phoning the Investor line on 1800 818 818, or through their La Trobe Financial Authorised Representative.
Accounts are managed through La Trobe Direct, our online investor platform, which provides access to balances and transactions and the ability to make new investments.
Conclusion
The mechanics are often where an investment either suits a particular situation or does not.
Check the minimum. Check whether money is committed for a term or subject to notice. Check the maximum period the constitution permits, not only the advertised notice period. Check how often income is paid and whether it can be reinvested. Check what happens if you need the money early, and it is generally safer to assume the answer is no unless the documents say otherwise.
Most of it is written down, in the Product Disclosure Statement, the Target Market Determination and our investor FAQs.
Frequently Asked Questions
A notice period is the time between requesting a withdrawal and receiving the funds. It differs from a fixed term, where money is committed until the term ends. In the La Trobe Australian Credit Fund, notice periods are two business days for the Classic Notice Account, 90 days for the 90 Day Notice Account and 180 days for the 6 Month Notice Account.#
No. A manager will make every endeavour to release funds within the advertised period, but fund constitutions generally permit longer. In the La Trobe Australian Credit Fund, the Constitution allows up to 12 months to fulfil a redemption request. Withdrawal rights are subject to liquidity and may be delayed or suspended.
The minimum is $1 for the Classic Notice, 90 Day Notice, 6 Month Notice, 12 Month and 2 Year Investment Accounts, $1,000 for the Select Investment Account and $250,000 for the 4 Year Investment Account.
Generally not. The 12 Month and 2 Year Investment Accounts are fixed term investments, and early redemptions are generally not permitted. Each request is reviewed subject to the liquidity rules of the Credit Fund and at La Trobe Financial’s discretion, and an early withdrawal fee may be charged if approved.
For the pooled accounts in the La Trobe Australian Credit Fund, investment returns are determined and paid monthly, either to a nominated account or reinvested. Rates of return are reviewed and determined monthly, are not guaranteed, and may be lower than expected.
Yes, if you direct it. Returns can be reinvested in the Classic Notice, 90 Day Notice, 6 Month Notice, 12 Month or 2 Year Investment Accounts. Reinvestment into the 2 Year Investment Account is only available to investors who already hold that account.
There are no investment entry or investment account set-up fees for the La Trobe Australian Credit Fund. Other fees and costs are disclosed in the Fees and Charges section of the Product Disclosure Statement.
A monthly Investment Snapshot and Portfolio Metrics Update, Investor Activity Statements, and a Financial Year Income Taxation Statement. Fund information is also available on the website, by phone, or through a La Trobe Financial Authorised Representative.
Related Reading
- Retirement Income Explained
- How to Compare Income Funds
- Liquidity in Retirement: How to Balance Access, Income and Stability
References
- La Trobe Financial, Australian Credit Fund Investor FAQs.
https://www.latrobefinancial.com.au/investments/frequently-asked-investment-questions/ - La Trobe Financial, Product Disclosure Statement.
https://www.latrobefinancial.com.au/app/uploads/PDS_investment.pdf - La Trobe Financial, Target Market Determinations.
https://www.latrobefinancial.com.au/investments/tmds/ - La Trobe Financial, Credit Fund Investment Snapshot and Portfolio Metrics Update.
https://www.latrobefinancial.com.au/investments/fund-profiles/
# We will make every endeavour to release your funds after receiving your withdrawal request: within 2 business days for the Classic Notice Account, 90 days for the 90 Day Notice Account, and 180 days for the 6 Month Notice Account. However, we have 12-months under the Fund’s Constitution to fulfill the request. When determining whether to honour your withdrawal request within the specified timeframes we have to have regard to the Fund’s ability to realise for value the relevant assets and the best interests of investors. While there is a risk of not honouring your withdrawal request within 2 business days, 90 days or 180 days, it’s important to note that there has never been a case in the history of the Fund when we have not honoured a withdrawal request on time due to a lack of liquidity.
La Trobe Financial Asset Management Limited ACN 007 332 363 Australian Financial Services Licence No. 222213 Australian Credit Licence No. 222213 is the responsible entity of the La Trobe Australian Credit Fund ARSN 088 178 321. It is important that you consider the Product Disclosure Statement (PDS) when deciding whether to invest or continue to invest in the fund. The PDS and Target Market Determination is available on our website.
Any Financial product advice is general only and has been prepared without considering your objectives, financial situation or needs. You should, before investing or continuing to invest in the La Trobe Australian Credit consider the appropriateness of the advice having regard to your objectives, financial situation or needs and consider the Product Disclosure Statement for the fund.
When considering whether to invest or continue investing in the Credit Fund, you should be aware that (1) an investment in the Credit Fund is not a term deposit, and your investment is not covered by the Australian Government’s deposit guarantee scheme. Investing in the Credit Fund has a higher level of risk compared to investing in a term deposit issued by a bank and (2) there are other risks associated with an investment in the Credit Fund. The key risks of investing in the Credit Fund are explained in section 9 of the PDS, available on our website.
Consider the relevant Product Disclosure Statement and Target Market Determination before deciding whether to invest, and consider seeking advice from a licensed financial adviser. Full disclaimers are available at https://www.latrobefinancial.com.au/retail-investor-disclaimer/
