Summary
Comparing income funds is arguably harder than comparing term deposits, because the headline rate generally tells you little on its own. Two funds can advertise the same target return, describe themselves in identical language, and own entirely different portfolios.
There is no single best option. What there is, is a short set of questions that apply to any income fund, and a small number of documents where the answers are required to be written down. It is generally more useful to compare structure than rates. A rate is an output. Structure is what produced it.
Our Chief Executive Officer, Chris Andrews, set out the six questions every investor should ask in The Cycle Does Not Create Risk. It Reveals It. This article takes those same six questions and adds the practical layer: where each answer is meant to be written down, and how to check it yourself.
Why Rates Are the Wrong Starting Point
With a term deposit, the rate and the term are effectively the whole product. Capital is covered up to $250,000 per account holder at each Australian authorised deposit-taking institution under the Financial Claims Scheme, so the comparison is relatively straightforward.
Income funds tend to be different, because the label generally describes the income rather than the risk. One fund may hold thousands of small first-mortgage loans across a diversified portfolio. Another may hold a few dozen large positions concentrated across a small number of borrowers, projects or regions. A third may combine senior lending with subordinated debt or equity positions. These can be quite different investments, whatever the product page says.
Where one fund offers noticeably higher returns than others in the same category, the difference usually reflects a higher risk position somewhere in the structure rather than better management. The more useful work is generally finding out where.
The Six Questions Worth Asking
None of these should require specialist knowledge, and each generally has an answer a manager should be able to point to in a document.
1. What does the fund actually own?
Are the assets senior loans, subordinated loans, developments, equity positions, businesses or related-party exposures? A loan secured by a first registered mortgage over real property generally has a different risk and recovery position from mezzanine finance, an equity investment in a development, or an investment in an operating business.
2. How concentrated is the portfolio?
What is the largest borrower-group exposure, and what proportion of the fund sits in the ten largest positions? Ask for exposure by portfolio value as well as by number of loans, because a fund can report a modest loan count while a significant share of investor capital sits behind those loans.
A handful of small loans in difficulty inside a portfolio of thousands may be manageable. The same number of large loans inside a portfolio of fewer than a hundred can be something else entirely. Concentration risk – having too much exposure across too few assets – is generally difficult to address after the event.
3. What is happening inside the loan book today?
How much of the portfolio, by value, is in arrears, impaired or in default, and how is that changing over time?
Arrears on their own tend to say very little. Most lenders encounter borrowers under financial stress from time to time, and a manager who reports arrears honestly is generally describing the ordinary business of credit. A more useful question is whether one borrower, or a small group of them, could become every investor’s problem, which is arguably a question about concentration rather than about arrears.
4. What security supports the loans?
Does the fund hold a first registered mortgage, or does another lender rank ahead of it? What is the loan-to-value ratio, or LVR, both average and maximum permitted? Who performed the valuation?
Valuation governance is generally a separate question from the LVR itself. A conservative ratio against an internally prepared valuation may not offer the same protection as a conservative ratio against a recent independent one.
5. Does the manager use investor capital for its own corporate purposes?
Can investor money be used to acquire businesses, fund related parties or support companies in which the manager holds equity? Where that is permitted, it should be expressly allowed by the mandate and clearly disclosed.
Equity, subordinated credit and business acquisitions can all be legitimate strategies, but each tends to carry risks and governance requirements distinct from a portfolio of arm’s-length secured loans. One simple version of the question may be the most useful: did my money buy a loan, or did it buy a business?
6. Where does the liquidity come from?
If a fund offers periodic access to capital, the manager should be able to explain what funds it. Scheduled principal repayments, borrower interest, cash holdings, committed facilities, asset sales, or a combination. Whatever the source, it should be credible and matched to the fund’s assets and investor terms.
A liquidity mismatch can stay hidden while redemptions are modest, and may only become apparent when they are not.
If any of these is hard to get a straight answer to, that may itself be informative.
Where the Answers Live
| What to check | Where to find it |
| Assets, security ranking, LVR, fees, withdrawal terms | Product Disclosure Statement |
| Who the product was designed for | Target Market Determination |
| Concentration, valuation policy, related-party transactions, scheme borrowing, liquidity | ASIC Regulatory Guide 45 reporting, where it applies |
| Arrears, defaults, portfolio composition | The manager’s monthly or quarterly reporting |
| Licence verification | ASIC professional registers search |
Two further checks can generally be done quickly. You can confirm a manager holds the licence it claims through ASIC’s professional registers search. And where it applies, ASIC Regulatory Guide 45 requires reporting against benchmarks and disclosure principles on an “if not, why not” basis, covering liquidity, scheme borrowing, portfolio diversification, related-party transactions, valuation policy, loan-to-valuation ratios, distribution practices and withdrawal arrangements.
Check Which Rulebook Applies
Regulatory Guide 45 is a useful comparison tool, but it does not cover the whole market.
RG 45 applies to registered mortgage schemes offered to individual investors. Corporate and business lending strategies, wholesale funds open only to sophisticated and institutional investors, and listed credit trusts all sit outside it. Two products described in the same terms can therefore carry very different disclosure obligations, and the benchmarks you might reasonably expect to compare them on may only have been reported by one of them.
Knowing which rulebook applies to each fund you are considering can be a sensible first step, and it is not generally something a product page will tell you.
What a Comparison Cannot Tell You
Whether a rate is good value. Income is generally only interpretable alongside the risk taken to produce it. A higher rate at higher risk is arguably a different product rather than a better one.
Whether a fund suits you. Suitability depends on your objectives, financial situation and needs, how long you can go without access to the money, and what else you hold. That is what the Target Market Determination addresses, and for many people it is what a licensed financial adviser is for.
What happens next. Past performance is not a reliable indicator of future performance. A track record generally describes conditions that have already occurred.
What a rating means on its own. A research house rating means an independent party has reviewed the manager and product against its own framework and reached a view. It is not a prediction, a guarantee, or advice that a product suits you. Different research houses use different scales, so ratings are not directly comparable between them.
How La Trobe Financial Answers These
Since the point of a checklist is that answers should be easy to find, here are ours.
All of the loans in the La Trobe Australian Credit Fund are secured by a registered mortgage over real property in Australia. The with most loans substantially lower. Investment returns for the pooled accounts are determined and paid monthly, and rates of return are reviewed and determined monthly, are not guaranteed, and may be lower than expected.
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.
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, while the Fund’s Constitution allows up to 12 months to meet a request. Withdrawal rights are subject to liquidity and may be delayed or suspended.#
Investor funds form part of the Credit Fund’s assets, which are held on trust by the Responsible Entity, La Trobe Financial Asset Management Limited and managed in accordance with the Credit Fund’s Constitution, Compliance Plan and the Corporations Act 2001. La Trobe Financial is regulated by ASIC and not by the Australian Prudential Regulation Authority, and has over seven decades of experience in asset management.
Current ratings and awards are published with the underlying reports. Ratings are one factor to consider when deciding to invest, and ratings reports are intended for the professional use of financial advisers only. The Product Disclosure Statement and Target Market Determinations for every account are on our website, as are our investor FAQs.
An investment in the Credit Fund is not a bank deposit, and investors risk losing some or all of their principal investment. Past performance is not a reliable indicator of future performance. Withdrawal rights are subject to liquidity and may be delayed or suspended.
Conclusion
Comparing income funds doesn’t need to take long, and arguably very little of that time should be spent on rates.
Ask what the fund owns, how concentrated it is, what is happening in the loan book today, what security supports the loans, whether investor capital can be used for the manager’s own purposes, and where the liquidity comes from. Then check the answers against the Product Disclosure Statement and the Target Market Determination rather than the marketing page.
The strongest income fund is not necessarily the one offering the highest rate. Investors may also consider how returns are generated, how risks are managed, and whether that information can be independently verified
Frequently Asked Questions
Comparing structure is generally more useful than comparing rates. Six questions cover much of it: what the fund owns, how concentrated the portfolio is, what is happening in the loan book today, what security supports the loans, whether the manager can use investor capital for its own corporate purposes, and where the liquidity to fund withdrawals comes from.
It is generally worth starting with the risk section rather than finishing with it. Look for what the document says it does not guarantee, the withdrawal terms including the maximum period permitted rather than the advertised notice period, how income is determined and whether it can be paid from capital, and what happens in a default.
A Target Market Determination describes the type of investor a product has been designed for, including their objectives, financial situation and needs and how long they can go without access to the money.
No. RG 45 applies to registered mortgage schemes offered to individual investors. Corporate and business lending strategies, wholesale funds for sophisticated and institutional investors, and listed credit trusts sit outside it. Two products described in similar terms can carry very different disclosure obligations, so it is worth checking which rulebook applies.
Not on its own. Income is only interpretable alongside the risk taken to produce it. Where one fund offers noticeably more than another in the same category, the difference usually indicates a higher risk position somewhere in the structure rather than better management.
Not by themselves. Most lenders encounter borrowers under financial stress from time to time, and arrears rise and fall as a normal part of lending. A more useful question is whether one borrower, or a small group of them, could determine the outcome for every investor, which is arguably a question about concentration rather than arrears.
Use ASIC’s professional registers search to confirm the Australian Financial Services Licence number a manager holds. Where the fund is a registered mortgage scheme, the responsible entity also reports against the benchmarks in ASIC Regulatory Guide 45, which is a useful like-for-like comparison tool.
Related Reading
- The Cycle Does Not Create Risk. It Reveals It.
- Retirement Income Explained
- Choosing a Retirement Income Provider: What to Look for Beyond Returns
- Liquidity in Retirement: How to Balance Access, Income and Stability
References
- La Trobe Financial, The Cycle Does Not Create Risk. It Reveals It., 21 September 2026.
https://www.latrobefinancial.com.au/news-and-insights/the-cycle-does-not-create-risk-it-reveals-it/ - Australian Prudential Regulation Authority, Financial Claims Scheme: Banks, building societies and credit unions.
https://www.apra.gov.au/financial-claims-scheme-banks-building-societies-and-credit-unions - Australian Securities and Investments Commission, Regulatory Guide 45: Mortgage schemes, improving disclosure for retail investors.
https://www.asic.gov.au/regulatory-resources/find-a-document/regulatory-guides/rg-45-mortgage-schemes-improving-disclosure-for-retail-investors - Australian Securities and Investments Commission, Professional registers search.
https://www.asic.gov.au/online-services/search-asic-registers/professional-registers-search
Any advice is general and does not consider your personal circumstances. This article does not take into account your objectives, financial situation or needs, and is not a recommendation to adopt any particular strategy. An investment in the La Trobe Australian Credit Fund is not a bank deposit, investors risk losing some or all of their principal investment, rates of return are variable and not guaranteed, withdrawal rights are subject to liquidity and may be delayed or suspended, and past performance is not a reliable indicator of future performance. 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/
