What is an Interval Fund?

Interval Funds are a type of mutual fund that operates differently from other mutual funds. Unlike open-ended funds, Interval Funds do not allow you to buy or sell shares on demand. Instead, they offer a fixed period during which you can purchase or redeem units, typically at specific intervals. These funds combine features of both closed-end and open-ended mutual funds. This blog will explain what interval funds are, how they work, who should consider investing in them, and what their key features are.

How do Interval Mutual Funds Work? 

Interval Mutual Funds operate on a fixed schedule for buying and selling. Unlike regular mutual funds, where you can buy or sell shares at any time, these funds only allow transactions during certain periods, known as “intervals.” These intervals are set by the fund manager and can be monthly, quarterly, or even yearly.

When you invest in an Interval Fund, you are not able to redeem your units immediately. Instead, you must wait until the next redemption window. The fund’s value, or net asset value (NAV), is calculated at the end of each interval.

These funds are usually invested in assets like bonds, real estate, or other less liquid investments that take longer to sell. Since these investments aren’t sold quickly, they offer a more stable return, but liquidity is limited. For those who don’t need immediate access to their money, Interval Funds can be an interesting option, as they offer higher returns compared to more liquid funds.

Who Should Invest in an Interval Mutual Fund?

Interval Mutual Funds are ideal for specific types of investors who are looking for a unique way to grow their wealth with less liquidity. Here’s who should consider investing in them:

Investors Looking for Diversification: If you’re looking to diversify your portfolio with assets like bonds or real estate, Interval Funds can offer a unique opportunity.

Long-Term Investors: These funds are better suited for those who are willing to invest for a medium to long-term period and do not need immediate access to their money.

Risk-Tolerant Investors: If you’re comfortable with moderate risk and want to explore less liquid assets that might offer higher returns, Interval Funds could be a good fit.

Investors Who Can Handle Limited Liquidity: Interval Funds are not ideal for people who may need quick access to their funds. These funds work best if you’re okay with redeeming your investment only during the set intervals.

Income Seekers: If you’re looking for stable returns from less volatile assets such as debt or real estate, Interval Funds might be a good option to generate steady income over time.

People Wanting Structured Investment: If you prefer a more structured investment approach with clear timelines for buying and selling, Interval Funds can be a suitable choice.

Also Read: Direct vs Regular Mutual Fund

Features of an Interval Fund 

Interval Funds have several unique features that make them stand out from other types of mutual funds:

1. Periodic Redemption

• Investors can redeem their units only at specified intervals, unlike open-ended funds that offer daily redemption. 
• This feature helps protect the fund from sudden market fluctuations, ensuring stability.

2. Hybrid Structure

• These funds combine the flexibility of open-ended funds with the limited liquidity of closed-end funds. 
• This hybrid structure allows investors to enjoy the benefits of long-term investments with a predictable redemption window.

3. Investment Focus on Less Liquid Assets

• Interval Funds typically invest in debt, real estate, or structured assets that are not as easily sold. 
• These assets have the potential to offer higher returns but come with higher risk due to their lower liquidity. 
• The focus on less liquid investments can help the fund deliver more stable returns in the long run.

4. Stable Returns

• Although redemption is limited, these funds tend to offer steady returns over time, making them appealing for long-term investors who don’t need immediate access to their capital. 
• Investors can expect consistent growth, particularly in markets that are less volatile.

5. Lock-in Periods

• Some Interval Funds may have a lock-in period, making them a good option for investors looking for a longer-term investment strategy. 
• This helps investors stay committed to the fund, reducing the temptation of short-term trading.

6. Reduced Volatility

• Due to the focus on less liquid assets, Interval Funds tend to experience less market volatility compared to traditional mutual funds. 
• This makes them a safer option in uncertain market conditions.

Interval Scheme in Mutual Fund

An Interval Scheme in a mutual fund is a unique investment approach where subscription and redemption happen only during specific intervals. 

Conclusion 

Interval Funds can be an excellent choice for investors who are looking for a blend of stability and moderate returns while being comfortable with limited liquidity. These funds offer access to less liquid assets and provide periodic redemption windows. However, they are not suitable for everyone, especially those who need immediate access to their money. Before deciding to invest, you should assess your financial goals, investment horizon, and risk tolerance. If you are ready to commit to the long term and seek a more structured investment approach, an Interval Fund may be worth considering.