Interval funds combine the attributes of open-ended mutual funds and closed-ended mutual funds with a definite structure of investment. Interval funds are different from ordinary mutual funds since they can be purchased or redeemed only within a given time frame set by the fund house.
These are debt funds but also have the option to invest in the instrument of equity. The biggest plus point of interval funds is that the fund managers have more leeway to frame investment plans without perpetual pressures of redemption. This gives them more space to work towards long-term growth, shedding liquidity issues.
How Do Interval Funds Work
Investors are free to invest in interval funds at any time, but redemption is only available during specified transaction windows (STP). The intervals and redemption windows are determined by the asset management company (AMC), during which the units are redeemed at the current Net Asset Value (NAV).
Key Features and Benefits
Interval Liquidity: Redemptions occur only during predefined windows, unlike open-ended schemes which allow redemptions at any time.
Low-Risk Investment: Interval funds are invested in debt instruments, thus suitable for conservative investors.
Access to Alternative Assets: Invest in commercial property, business loans, and land parcels.
Moderate Returns: Have historically yielded returns of around 6-8% over five years.
Taxation: Depending on the debt-equity asset mix.
Conclusion
Interval funds suit investors seeking low-risk, short-term investments with alternative asset exposure. Although they are similar to closed-ended funds in some aspects, they provide periodic liquidity and thus are a flexible choice for some investors.
