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Guardian Trust has suspended withdrawals from its mortgage fund - the third mortgage fund to do so in just over a week.
The Guardian Mortgage Fund was established in 1986 and has 3700 investors with $249 million invested.
It follows the Canterbury Mortgage Trust, New Zealand's second-largest mortgage fund, and the Totara First Mortgage fund, which put a stop to their investors taking money out last week.
Canterbury has 5000 investors with $250 million invested and Totara has 2400 with $60 million tied up.
Guardian Trust managing director Sean Carroll said the decision was taken because the fund's liquidity rate had dropped below 5 per cent - a level which the directors did not consider appropriate.
"Poor liquidity is a feature of today's markets. We need to manage liquidity requirements very closely in funds such as these, where the assets [primarily mortgages] cannot be converted to cash quickly," Carrollsaid.
The fund invests in first mortgages only and has a limit of 60 per cent of the value of the mortgages it has over commercial, retail, industrial, farming and residential property.
Carroll said Guardian Trust was taking a cautious and prudent approach.
"We will review the situation regularly and will update investors and the market as appropriate."
Guardian Trust will continue making interest payments on the suspended investments.
The trust brings the number of finance companies to hit trouble in the past two years to 27.
