Private credit fund vs Term deposit
Private credit fund vs term deposit in Australia: yield, liquidity, capital protection, eligibility and tax. How to decide where wholesale investment capital belongs.
A term deposit guarantees return of capital within the government deposit guarantee (up to $250,000 per depositor per ADI) and pays the prevailing cash rate. A private credit fund targets a higher net yield from a pool of first-mortgage-backed loans, but offers no capital guarantee, requires a notice period for redemptions, and is restricted to wholesale investors. The choice depends on whether guaranteed capital return or higher yield from a regulated, asset-backed structure is the priority.
Side-by-side
| Attribute | Private credit fund | Term deposit |
|---|---|---|
| Target yield | Higher net yield than term deposit rates, reflecting first-mortgage credit premium (see fund IM) | Prevailing bank deposit rate at time of investment |
| Capital guarantee | No guarantee; return of capital depends on borrower repayment and security values | Yes, government Financial Claims Scheme to $250,000 per depositor per ADI |
| Security backing | First-registered mortgages over Australian real property | Bank balance sheet (retail deposits) |
| Liquidity | Redemption notice period (typically 30-90 days); less liquid than a bank deposit | At maturity (break fees apply for early exit on term products) |
| Minimum investment term | Typically 12 months (varies by fund, see IM) | 31 days to 5 years (varies by ADI) |
| Eligibility | Wholesale investors only under s708 Corporations Act 2001 | Open to all retail and wholesale investors |
| Regulatory framework | AFSL-regulated managed investment scheme (ASIC oversight) | APRA-regulated ADI; government deposit guarantee scheme applies |
| Income tax treatment | Trust distributions assessed as income in the investor's hands (see fund IM and tax adviser) | Interest assessed as income in the investor's hands |
| Reporting and transparency | Monthly NAV, loan-level reporting and quarterly fund updates (varies by manager) | Simple: rate set at opening, no ongoing reporting required |
- Qualified wholesale investor seeking yield above the deposit rate and prepared to accept illiquidity and no capital guarantee
- Self-managed super funds or family offices with surplus capital seeking asset-backed monthly income
- Investors with a 12-month-or-more horizon who have read and understood the fund's Information Memorandum
- Capital allocated to an alternative to listed equities, targeting lower volatility with a credit income profile
- Investors who understand first-mortgage credit risk and are comfortable with the fund's LVR policy and exit underwriting
- Retail investors who need the government deposit guarantee on their capital
- Capital with a specific near-term deployment date (deposit, tax, payroll) that cannot be locked up for 12 months
- Investors who require guaranteed return of principal above all other objectives
- Investors not qualified as wholesale under s708 of the Corporations Act
- Short-term parking of liquid cash reserves below the $250,000 guarantee threshold
In practice
The comparison between a private credit fund and a term deposit is, at its core, a comparison between a yield premium and a capital guarantee. Both are legal ways to put capital to work. The structural differences are material.
A term deposit is a bank product. The investor places capital with an APRA-regulated bank, the bank promises to return it at maturity with interest at the agreed rate, and the government guarantees that promise up to $250,000 per depositor per ADI under the Financial Claims Scheme. The rate is fixed, the outcome is certain within the guarantee limit, and the main constraint on liquidity is the maturity date. The trade-off is yield: the term deposit rate is the risk-free rate for Australian cash and is priced as such.
A private credit fund is a different instrument. The investor places capital into a managed investment scheme (typically a unit trust) and the fund manager deploys it into a portfolio of property-secured loans. Distributions are funded from the interest income on those loans. NAV per unit reflects the market value of the loan portfolio. There is no capital guarantee, returns depend on borrowers repaying as contracted, and redemption requires a notice period. In exchange for accepting those risks and constraints, the investor targets a materially higher yield than a term deposit of the same duration.
The security profile of a well-managed first-mortgage private credit fund is meaningful but not equivalent to a government guarantee. First mortgages give the lender first-ranking priority over the property on borrower default: the lender can sell the property to recover principal. Historical recovery rates on well-originated Australian first-mortgage portfolios are strong, but past performance does not guarantee future results, and a concentrated or poorly originated book can impair capital.
For an investor deciding between the two, three questions matter most. First: am I qualified as a wholesale investor under section 708 of the Corporations Act? If not, access to the fund is restricted. Second: can I commit the capital for 12 months or more without needing to access it? If not, a term deposit or a shorter-dated cash product fits better. Third: have I read the fund's IM and do I understand the loan origination policy, LVR caps, and exit underwriting? If yes, the yield premium is the reward for that analytical work.
The two products are not substitutes in the same risk category. They sit in different risk-return positions and are typically held alongside each other in a diversified portfolio rather than in direct competition.
Past performance is not indicative of future returns. Investment risks apply; read the Information Memorandum before investing. Archer Wealth conducts investment activities under AFSL 548263.
Frequently asked
- Is a private credit fund safe?Private credit funds carry real risks, including partial or total loss of capital if borrowers default and security values fall below loan balances. A first-mortgage fund with conservative LVRs, diversified security, and rigorous exit underwriting has historically shown strong capital preservation in Australia, but there is no guarantee. Past performance is not indicative of future returns. Read the fund's Information Memorandum before investing.
- Can I access my money early from a private credit fund?Most Australian private credit funds require a redemption notice period, typically 30-90 days, and some impose a minimum holding period before any redemption is accepted. Unlike a bank deposit, early exit depends on the fund manager having liquidity available, which can be constrained in a stressed credit environment. Treat private credit fund capital as illiquid for the investment horizon stated in the IM.
- Are distributions from a private credit fund taxed the same as term deposit interest?Both are assessable income in the investor's hands, but the detail differs. Term deposit interest is straightforward. Trust distributions from a private credit fund can include income components with different tax treatment depending on the fund's distribution policy and the investor's personal circumstances. Speak to a registered tax adviser before investing; the tax position is investor-specific.
- Who can invest in the Archer Wealth Investment Fund?The Archer Wealth Investment Fund is offered to wholesale investors only under section 708 of the Corporations Act 2001 (Cth). The most common qualification grounds are net assets of at least $2.5 million, gross income of at least $250,000 in each of the past two financial years, or investing at least $500,000. Qualification is confirmed before the Information Memorandum is released. Past performance is not indicative of future returns; read the IM before investing. Archer Wealth holds AFSL 548263.