Some people assume that all savings products should be protected by the Deposit Compensation Scheme (DCS). But when it comes to managed funds – especially those invested in very low-risk assets – the logic doesn’t apply.

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The DCS was designed for banks and non-bank deposit takers (NBDTs), which borrow money from the public in the form of deposits. These institutions take your deposit, put it on their balance sheet, and use it to fund lending and other activities. Because your money becomes their liability, it’s at risk should the deposit-taker fail. That’s why the government has decided to provide a safety net.

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Managed funds work differently. The manager doesn’t borrow your money. Instead, every dollar you invest remains in the fund and is used to purchase investments on your behalf. There’s therefore no lender–borrower relationship that needs protecting. You own units in (or a share of) the entire pool of these investments which the funds hold in trust, separate from the fund manager’s own finances.

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The Wedge Savings Fund investments currently carry a AA weighted average credit rating, which means that pool of assets are some of the strongest credit quality investments in the world. Having your money backed dollar-for-dollar by very low-risk assets means it’s not dependent on the solvency of one deposit-taker or has to rely on the DCS to bail you out should that institution fail.

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That’s why managed funds don’t need to sit under the DCS framework. Their safety comes not from a government guarantee but from the strength and quality of the funds underlying assets.

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And when those assets are of AA calibre, the risk they carry is lower than any one of New Zealand’s largest (AA- rated) banks.

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Important notes

Wedge Management Limited ('Wedge') is not a bank and the Wedge Savings Fund ('fund') is not a bank account. Before opening a Wedge account, we highly recommend you read and consider the fund's Product Disclosure Statement and all supporting material available on our website.

Neither Wedge nor its employees give financial advice. Therefore, this article is for informational purposes only and does not constitute investment advice.