Some investors have been surprised to see Guardian Trust's CashPlus fund had as much as 35 per cent invested in mortgage securities.

Guardian announced last week it would split out the cash portion of the $160 million fund so it can meet the requirements to be covered under the Government's Deposit Guarantee scheme.

The $52 million invested in mortgage securities, which aren't covered under the scheme, will be put into a separate fund which is capital-guaranteed by Guardian Trust.

It will then try to sell these securities but unless the mortgages are of a particularly high quality, it could end up sitting in a frozen wasteland like many of the other mortgage trusts which have had to suspend withdrawals in the last six months.

Financial Planner Murray Weatherston says it's not unusual to find mortgage securities in a cash fund.

Most of the banks run large cash funds and generally they appear to be solely in cash deposits.

But the non-banks appear much more likely to have mortgage securities in their funds.

Perpetual Trust's cash fund has 30 per cent in mortgage assets as does AXA. Perpetual Trust said yesterday it would not split its cash fund at this stage.

Public Trust also invests 16 per cent of its fund in mortgage-backed securities.

So are we likely to see more splits in the sector? Weatherston thinks so.

"I suspect anyone with a cash fund will be looking very carefully at the composition and either selling or splitting off their mortgage assets."

He says it's another unintended consequence of the guarantee scheme.

The situation is a reminder to investors to read through the investment statements of any new product they might be investing to see what the trust deed allows the fund manager to invest in.

Just because it's called a cash fund doesn't mean it's all invested in cash.

KIWISAVER LINKS

The split-up of the Guardian Cashplus Fund is also expected to have a flow-on affect to Asteron's KiwiSaver funds.

Guardian Trust, Asteron and Tyndall Investment Management are all owned by Australian firm Suncorp Metway and unsurprisingly there are links between the businesses.