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What Are Interval Funds? 5 Factors Investor Should Consider Before Investing In Them

By Author: Swarali Chavan
Total Articles: 37

At some point of time in life, people decide to take the investment route. When it comes to long-term investments, mutual funds are ideal. Investors can reap the benefits of higher returns, thanks to their diverse portfolio along with professional management funds. Investments are of various kinds one such is interval funds.

What is interval funds?
It is a mutual fund where the fund houses allow investors to purchase/sell units only during a pre-determined period. The intervals could be daily, weekly, monthly, quarterly or half-yearly. Very few schemes are launched under interval funds.

How do interval funds work?
Interval funds are a blend of close-ended and open-ended funds. Just like close-ended funds, one cannot buy/sell units frequently. Intervals funds get listed on stock exchange, and some fund houses may allow redemptions during a specific time at the current/ongoing Net Asset Value (NAV) rate.

What are the features of interval funds?
• Interval funds invest in both equity and debt securities. However, the portion is more towards debt instruments
• Since investors can buy and sell such funds only in intervals, it does not provide instant returns. They are not ideal for emergency purposes. However, if the investor is looking for steady growth, then interval funds are perfect
• The expense ratio is usually higher for interval funds
• Risk-averse individuals can opt for interval funds as such funds primarily focus on debt securities

Before investing in interval funds, investors have to consider certain factors:

1) Risk: Considering one can spend only in a predetermined period, interval funds do not provide a quick profit. They are completely illiquid. So, risk-averse individuals can opt for such funds. Even if the investor is ready to pay the exit load, they cannot do so before the desired period.

2) Returns: If you are looking for best yields, interval funds are not the way to go. After 5 years, most of the interval funds manage to provide only 6 to 8.5 per cent. Since these returns come in short periods, they are deficient in comparison to other funds.

3) Investment horizon: Interval funds are primarily meant for short-term goals. If the investment matches the maturity dates of interval funds, one can earn short-term returns.

4) Financial desires: Such funds come handy for investors who are unsure of the investment tenure. They are also perfect for investors who want a lump sum amount at a fixed time. Also, these are low-risk investment instrument. So, investors who are risk-averse can consider it.

5) Taxation: The interval funds taxation depends on the type of investment, i.e. debt or equities. If the funds invest 65 per cent of its assets in equity funds, they are taxed like equity funds, else like a debt fund.

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