How do funds work?

A managed investment scheme works by pooling money from a number of investors into a fund and then using this money to buy a variety of investments.

It gives you, the investor:

  • greater security,
  • greater buying power,
  • allows you to share costs and
  • gives you the benefits of professional management.

When you invest, you buy 'units' - and the cost of each unit is the 'unit price'. The unit price moves up and down, normally daily, to reflect the value of the investments in the fund.

The pooled investments are kept separate from the assets and liabilities of the manager and are regularly monitored by an independent party, the Supervisor.

The main parties to a managed investment scheme are outlined below:

The Supervisor

  • Ensures compliance with the Trust Deed
  • Protects the rights of investors

The Custodian

  • Holds the investments on trust for the fund
  • Financial institution that provides safekeeping of the investments independent of the manager

The Manager

  • Makes the investment decisons for the fund
  • Markets the fund
  • Reports to the Supervisor and unit holders

The Administration Manager

  • Values the fund through unit prices
  • Provides registry and accounting services
  • Reports to the Supervisor and unit holders


  • Invests $$ in exchange for units in the Fund
  • Entitled to full share of investment gains and losses
  • May remove either Supervisor or manager in accordance with the Trust Deed
  • Can redeem either some or all units in the Fund in exchange for $$

Each fund is governed by a Trust Deed and an Establishment Deed which sets out the legal structure and the terms and conditions that will be applicable to the managed investment schemes established by the manager and the Supervisor.

The diagram below summarises the managed investment scheme structure.

Example transaction

  • Investor invests $10,000 into fund with the unit price at 1.0000. Resulting in the issue of 10,000 units.
  • The investors units change in price each day depending on the underlying asset movements and fees etc. For example if the fund returned 1% on the day after fees the unit price would change to 1.0100 and the investors units would be worth 10,000 * 1.0100 = $10,100.
  • After a few years the investor wishes to cash in half their units and the unit price is say 1.5000 (indicating the fund has gone up 50% after all fees over those years). They get 5,000 * 1.5000 = $7,500 in cash and still have 5,000 units with a current value of $7,500.
  • Note this is a theoretical example and is not necessarily indicative of what any fund may return in reality.

What is a PIE fund?

From the 1 October 2007 a managed investment scheme may elect to be a Portfolio Investment Entity or ("PIE") fund if it meets the required eligibility criteria. The main benefit of a PIE is that a PIE will generally pay tax on investment income based on the Prescribed Investor Rate ("PIR") of each investor, rather than at the investor's marginal tax rate. This means that if you have provided your correct PIR, you will not normally be requried to file a tax return in relation to your income from a PIE fund. See for further detail.

If you are an individual Unitholder and a New Zealand resident, your PIR will be either 10.5%, 17.5% or 28%. In order to qualify for the 10.5% or 17.5% PIR, you must be a New Zealand resident for tax purposes, must supply a valid IRD number, and must meet the following criteria:

New Zealand resident individual (non-zero rated) Unitholder

10.5% In one of the last two income years*:

• your taxable income was $14,000 or less;


• when combined with the income from your PIE investments your total income was $48,000 or less.


In one of the last two income years:

• your taxable income was between $14,000 and $48,000;


• when combined with the income from your PIE investments your total income was $70,000 or less;


your taxable income was $14,000 or less but when combined with income from your PIE investments was more than $48,000 but less than $70,001.

28% If you do not meet the requirements for the 10.5% or 17.5% rates.




* Income years generally commence on 1 April in any year and end on 31 March in the following year.

There may always be future changes to the taxation legislation and tax rates which may impact each Unitholder differently. You should always seek independent professional taxation advice for your individual circumstances.

This information is generic in nature and investors should always read all documentation associated with any Unit Trust or investment product carefully and seek advice.