Balmain Funds, the responsible entity for the Balmain Mortgage Trust, is pitching an idea with financial planners, platforms, dealer groups and researchers for a mortgage fund that acts more like a term deposit.
Balmain Funds' idea would involve creating and marketing mortgage funds as term investments that pay out monthly income, rather than letting investors assume they can withdraw at any time, Balmain Funds chief executive officer John Thomas said.
"We certainly think there is a great future in mortgage funds. But what the guarantee showed us is that there was a mismatch between assets and liabilities," he said.
"So we were raising funds from the public in what they believed was an 'at call' product but which was more suited to a three- to five-year investment horizon."
Fees for term mortgage funds would also likely be lower over time than they are for current mortgage funds, he said.
Thomas said the Balmain Fund product would allow an investor to withdraw 10 per cent of their investment in each of the first three years without penalty, with the balance of the investment paid at maturity.
Any other redemption requests would be considered on a hardship basis only and at the discretion of Balmain Funds.
These redemptions, over and above the 10 per cent per annum, would be penalised in the same way as if consumers were to pull a term cash deposit prior to maturity at a bank, Thomas said.
Zenith Investment Partners associate director Ben Davis said Balmain's approach is a sound idea, as it reduces the liquidity mismatch between the redemption frequency and the term of the underlying investments.
"It also provides time to attract new inflows to help sustain the business following the end of the investment term," he said.
