Advisers are increasingly challenged to deliver reliable income streams, protect client capital and construct portfolios that withstand market volatility. Traditional sources of income such as bank term deposits, savings accounts and even government bonds have largely failed to meet investor expectations — especially when factoring in inflation and market risk.
As clients become more sophisticated in their investment outlook, advisers are turning toward alternative income solutions to bridge the yield gap. One solution gaining strong traction is the first mortgage fund — a type of private credit fund offering attractive, asset-backed income with a risk profile aligned to income-focused and capital-preservation mandates.
This blog unpacks why first mortgage funds are increasingly becoming part of the recommended portfolio mix and why now may be the ideal time for advisers to take a closer look.
What is a first mortgage fund?
A first mortgage fund, such as the Funding Income Trust, is a type of managed investment vehicle that pools investor capital and lends directly to borrowers. These loans are typically secured against real estate via a first-ranking registered mortgage and often have short terms (1 to 36 months).
In return, the fund receives interest payments, which are distributed to investors. The key distinction is that capital is secured by real property, providing recourse in the event of default.
First mortgage funds are resonating with advisers
- Enhanced Yield Without Sacrificing Security: Many first mortgage funds target net income returns of 7.5%–9.0% p.a., paid monthly. Compared to bank deposit rates of 4.0% or less, this presents a significant yield premium. This yield is generated from the real economy — borrowers paying interest on secured loans — not from speculation or complex financial products.
- Defensive Characteristics Without Market Correlation: First mortgage funds are typically uncorrelated with equity and bond markets, helping reduce portfolio volatility and smooth returns. During periods of market disruption, performance may hold or improve due to increased borrowing costs and demand for non-bank finance.
- Asset-Backed Security Supports Capital Preservation: Loans are secured by first-ranking mortgages and conservative LVRs, often below 65%. This equity buffer helps protect against capital loss. This makes the strategy suitable for clients prioritising capital preservation, such as retirees and SMSFs.
- Consistent Monthly Income for Retirement Portfolios: Monthly income from borrower interest supports cash flow needs, making mortgage funds attractive to SMSFs and retirees relying on drawdowns. Many advisers are using them as a core allocation in retirement strategies, balancing income certainty with low volatility.
How advisers are using first mortgage funds
Financial advisers are incorporating first mortgage funds to:
- Replace low-yielding government bonds or credit products
- Supplement term deposits with higher yielding, capital-protected exposure
- Diversify retirement income portfolios
- Deliver inflation-aligned returns without equity volatility
- Generate income while awaiting market re-entry
Most are using private credit to complement other income and growth assets — not replace them.
What to consider when selecting a fund
Key due diligence considerations include:
- Lending Philosophy & Risk Controls – Are loans assessed in-house? Is manager capital at risk?
- Loan Diversification – Does the fund avoid concentration by borrower, geography or asset?
- Fee Structures – Are incentives aligned with investors?
- Track Record – Has the manager consistently met return and capital targets?
Who is the ideal client for this strategy?
Though often limited to wholesale investors, first mortgage funds are suited to:
- Retirees seeking stable income
- SMSFs diversifying from equities and deposits
- HNWIs with conservative risk profiles
- Clients awaiting re-entry to growth assets
- Family offices seeking consistent, low-volatility returns
Advisers should confirm the fund’s TMD aligns with client objectives, especially around capital and income needs.
A strong addition to the modern advice toolkit
As advisers work to deliver stability, reduce client anxiety and future-proof portfolios, first mortgage funds such as the Funding Income Trust offer a compelling solution.
They combine capital preservation, income and low correlation, offering strong benefits in uncertain conditions. With real asset backing and growing awareness, mortgage funds are becoming an essential part of diversified portfolios.
Now is the time to move beyond traditional income strategies and explore how these funds can strengthen financial outcomes.
Why invest with Funding?
At Funding, we believe smart investing goes beyond returns — it’s about trust, transparency and security.
Our solutions are backed by Australian property and managed by a specialist team with deep private credit experience.
Why investors choose Funding:
- Capital Protection – First-ranking mortgages with conservative LVRs
- Consistent Income – Monthly income distributions
- Private Credit Expertise – Strong track record in loan structuring and management
- Diversification – Broad exposure across borrowers and regions
- Clear Communication – Transparent data and responsive support
Start earning smarter
Whether you’re seeking income, stability or diversification, Funding offers a professional solution for advisers and investors.
Speak with our team to discover how Funding can support consistent income backed by real assets.
