The Mortgage Income Trust, of which there is a retail and a wholesale version, will return all capital to investors through regular payments over the next three to four years. Last year, Australian Unity began a wind-up of its High Yield Mortgage Trust.

Mortgage funds have been hit hard by the global financial crisis and the federal government's introduction of the $250,000 guarantee on bank deposits in late 2008.

Mortgage funds, or trusts as they are sometimes known, were favoured by retirees seeking secure income. They are not covered by the guarantee and worried investors have been withdrawing their money from the funds. Most mortgage funds have been forced to freeze withdrawals or offer limited withdrawals, though they have continued to pay income to investors.

The general manager of property, mortgages and capital markets at Australian Unity Investments, Mark Pratt, says even four years after the bank guarantee was introduced, withdrawal requests are continuing. He says the best course of action, therefore, is to terminate the trusts and return the balance of the capital to investors.

Mortgage funds lend investors' money for commercial property investment to property developers and to holders of residential mortgages. They maintain minimum levels of shorter-dated fixed-interest investments and cash to be able to offer daily liquidity to investors.

But the mortgages are paid back over several years. Ordinarily, that is not a problem. But when investors want their money back, such as after the government introduced its bank-deposit guarantee, the funds were not able to raise enough cash to repay investors in full. Most funds, including Australian Unity's, have been offering limited or capped withdrawals at regular intervals, usually monthly or quarterly.

Loan arrears in the Mortgage Income Trust is about 3 per cent of the loan book, which is low by mortgage fund standards. Investors will receive all of their capital back, Pratt says. Most mortgage funds maintain a unit price of $1 and the funds pay regular income. ''When people put their money into these mortgage trusts they want income and expect that if they put a dollar in that they get a dollar back,'' Pratt says. ''We have been focusing on [maintaining] that in these funds and with the high-yield trust.

''With the high-yield trust, we have now returned 35 per cent of investors' capital and it has always been at a dollar [a unit] since the wind-down started. We expect to be able to do that over the coming period as well.''

Pratt says the niche that mortgage funds filled for both investors and borrowers is still worthwhile. "We will continue to investigate alternative approaches as part of our product-development activities, taking advantage of our considerable commercial lending expertise to create alternative income-producing options for investors,'' he says.

Australian Unity expects to make an initial payment to investors in the Mortgage Income Trust before Christmas of up to 10 per cent of each investors' capital, and to continue on schedule by making regular payments each six months.