When you have money sitting available to invest in Hatch, it needs to be stored somewhere. Money market funds are a common place to park money temporarily before investing it. They spread your money across lower-risk investments with the goal of keeping your money at a stable amount (i.e your $1 should always be worth around $1).
The money market fund will be invisible to you as an investor. It's managed behind the scenes, and your money isn't locked away. You can buy shares with it, or withdraw it whenever you like.
When you invest with Hatch, your money is stored in a money market fund with Dreyfus BNY Mellon. The Dreyfus BNY Mellon money market fund has a credit rating from two reputable ratings agencies and you can find their prospectus here.
You might get dividends on your non-invested money!
The good news is, that while money is sitting the fund, it's already working for you. Money market funds pay out dividends that almost mimic current US interest rates. Any dividends will appear in your Hatch account at the beginning of the month. The transaction will show up as 'Dividend - Money market fund' or DAGXX.
Your available balance is part of your investment cost for tax purposes
If you had $50,000 NZD or more invested overseas (i.e your investment cost - or the total price you paid for your investments) during the tax year, then the Foreign Investment Fund (FIF) tax rules apply. Your available balance is treated as an investment for FIF purposes and counts towards this $50,000 NZD investment cost.
For example, if you had $49,000 NZD invested overseas, then deposited $5,000 NZD into Hatch, your investment cost would be $54,000 NZD and the FIF rules would apply to you.
We know one size doesn’t fit all when it comes to how your available balance is treated for tax. Until a time where every individual can choose how to store it, Hatch uses a money market fund because it’s the most straightforward option for the most investors.
Note: While keeping money in a cash account may seem straightforward, complex Financial Arrangement tax rules could apply for many investors. At Hatch, we believe in putting control in your hands and we’re continually working with our US broker DriveWealth to investigate how we can let individual investors choose their preference.
Your tax obligations are unique to you - if you're unsure, we recommend you seek professional tax advice. Your situation may change over time; it’s your responsibility to keep up to date with changes.