PIEs came into existence on 1 October 2007. A cash PIE is one that invests in cash and has the same level of risk as a term deposit.
The benefit of being a PIE is the tax treatment of the income created by the Fund. In a PIE, income is no longer taxed at the fund level but allocated to investors and taxed at the investor's Prescribed Investor Rate (PIR) with a cap of 30%. This is of benefit to those investors on a marginal tax rate of 39% and 33%.
Generally if your income for the last two years averaged less than $38,000 then your PIR is 19.5% and if it averaged over $38,000 its 30%. Of course all things tax related are never simple so have a look at www.ird.govt.nz for more detailed information.
As Kiwis we love to save tax so PIEs are a great investment option for those in the top tax brackets. PIEs increase the effective tax rate of our investment. For example if you invest in the Raboplus Cash Advantage Fund, which is managed by AMP Capital and has a rating of AAA, and you are on a 39% marginal tax rate then your 8.30% return as an effective gross return of 9.92%.
This essentially means that the nett return you get from this Cash PIE giving a return of 8.30% is the same as if you were earning a return of 9.92% in a non PIE investment. The following link gives a detailed explanation of how it works. http://www.raboplus.co.nz/Landing/0804C/disclaimer.html
Given the volatility in the investment markets at the moment Cash PIEs are a good option to consider as they are low risk, have a good return if you have a high marginal tax rate and have good liquidity.
In tough market conditions like we are currently in there are often some great buying opportunities and having your money easily accessible and getting a good return at the same time waiting for those opportunities makes great sense.