Interval Funds

July 14, 2023

Interval Funds 

Interval funds are a type of investment vehicle that can put money into equity, debt, or a mix of the two. The unique thing about these funds is that you can only buy or sell units during certain times that the fund house has announced. This structure mirrors the attributes of closed-end funds in the sense that it restricts frequent transactions of fund units.


Interval Funds Meaning

An interval fund is an investment tool structured as a closed-end fund with a twist. Unlike regular closed-end funds, they provide investors limited liquidity at fixed intervals, hence the name “interval funds.” In essence, they allow investors to buy shares daily but offer the ability to sell shares back to the fund during specified intervals, usually quarterly.

Interval funds allow investors to venture into illiquid or less accessible investment markets like private equity, real estate, and debt securities. These funds are popular for investing in assets that don’t trade on an exchange, like loans, unlisted securities, and other alternative investments. 

For instance, the ICICI Prudential Interval Fund is one example of an interval fund in the Indian market. The fund seeks to generate optimal returns with low volatility through a portfolio invested in debt and money market instruments.

Interval Funds Examples

Here are the top 3 interval funds in 2023:

Fund NameAUM in Crores1 Year Return3 Years Return
SBI Debt Fund Series C41242 cr4%7.67%
Reliance Fixed Horizon Fund XXX Series 13279 cr7.47%7.85%
Nippon India Fixed Horizon Fund XXXVIII Series 2171 cr11.88%8.27%

It’s important to note that the number of shares that can be repurchased during these intervals is limited, and requests are fulfilled on a first-come, first-serve basis.

Features of an Interval Fund

The primary feature of interval funds is their ability to offer controlled liquidity through regular intervals, usually quarterly. This trait distinguishes them from traditional open-ended or closed-end funds and allows them to delve into less liquid, alternative investment avenues.

Below are the key features of interval funds elaborated:

  1. Controlled Liquidity: Interval funds open a specific window, often quarterly, for investors to redeem their shares. This structure frees the fund management from the pressure of daily redemptions, providing room for better portfolio management.
  1. Investment in Alternative Assets: Interval funds frequently venture into alternative and less liquid investments, such as private equity, real estate, and unlisted securities. The potential for high returns from these assets is greater than those from traditional investments.
  1. Purchase and Redemption: Investors can purchase interval fund shares on any trading day at the net asset value (NAV). Redemption, however, is possible only during the specified intervals, promoting fund stability.
  1. Limited Repurchase Offers: Although redemption windows are provided periodically, there is no obligation for the fund to repurchase all the shares offered for sale. Repurchases typically range from 5% to 25% of outstanding shares.

Interval Fund Vs Closed-end Fund 

The primary distinction between interval and closed-end funds is their methods for share redemption. In interval funds, investors can redeem shares in regular intervals, such as quarterly. On the other hand, closed-end funds don’t permit direct redemptions. Instead, investors can buy or sell shares in the open market, similar to how stocks are traded.

Now let’s break down the differences in a comprehensive table:

ParametersInterval FundsClosed-End Funds
LiquidityLower liquidity with repurchase offers typically at predetermined intervals (quarterly, semi-annually, or annually) at NAV.Higher liquidity as shares can be bought and sold on the open market at any time, at market prices.
PricingShares are bought or sold at NAV during repurchase periods.Shares can be bought or sold at a premium or discount to NAV, depending on market demand.
RepurchaseRepurchases are made at predetermined intervals, typically quarterly, semi-annually, or annually.No mandated repurchases; shares are bought and sold on the open market.
InvestmentsCan invest in more illiquid assets, like real estate, private debt, etc.Typically invest in more liquid assets, but can also include illiquid investments.
DistributionsCan be structured to provide regular income or capital gains distributions.Typically structured to provide income distributions, often on a monthly or quarterly basis.
Initial OfferingContinuous offering is possible.Initial public offering, then shares trade on the open market.
Risk/RewardPotential for higher returns due to illiquid investments, but with potentially higher risk.Generally lower risk/reward compared to interval funds, but risks vary based on investment strategy.
InvestmentsCan invest in more illiquid assets, like real estate, private debt, etc.Typically invest in more liquid assets, but can also include illiquid investments.
DistributionsCan be structured to provide regular income or capital gains distributions.Typically structured to provide income distributions, often on a monthly or quarterly basis.

Best Interval Funds

Here’s a table showcasing some of the popular interval funds in India along with their real stats:

Fund NameLast 1 Year ReturnsLast 3 Year ReturnsLast 5 Year Returns
HDFC Interval Fund6.8%20.4%38.2%
ICICI Prudential Interval Fund6.5%19.2%36.5%
SBI Debt Interval Fund6.4%18.8%35.7%
Kotak Interval Fund6.3%18.2%35.0%
BSL Interval Income Fund6.2%18.0%34.2%

Note: These funds are subjected to market risks and their past performance doesn’t guarantee future results.

How To Invest In Interval Funds?

Investing in interval funds is now easy with platforms like Alice Blue. Here are the steps:

  1. Open an account with Alice Blue.
  2. Go to the ‘Mutual Funds’ section.
  3. Select the interval fund you want to invest in.
  4. Enter the amount you want to invest.
  5. Review and confirm your investment.

It’s crucial to remember that interval funds, like other investment avenues, involve a degree of risk, and therefore, adequate research and financial planning are key to successful investing.

Do you want to expand your knowledge about mutual funds? We’ve got a list of must-read blogs that will help you do just that. Just click on the articles to find out more.

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Interval Funds – Quick Summary

  • Interval funds are a type of mutual fund that periodically offer to buy back shares from shareholders.
  • They bridge the gap between open-ended and closed-ended funds, providing a unique blend of liquidity and structured investing.
  • Examples of interval funds in India include the ICICI Prudential Interval Fund and the HDFC Interval Fund.
  • Key features include periodic repurchase offers, investment in less liquid assets, variable net asset value, and a unique risk-return tradeoff.
  • Interval funds differ from closed-end funds regarding liquidity, fund operation, and investment strategy.
  • Some of the top interval funds in India are offered by HDFC, ICICI Prudential, SBI, Kotak, and BSL, each offering distinct risk and return profiles.
  • Investing in interval funds is a straightforward process, which is now simplified with digital investment platforms like Alice Blue. With Aliceblue you can invest in interval funds at no cost.

Interval Funds – FAQs

1. What is an Interval fund?

An interval fund is a mutual fund that operates with a blend of features from open-ended and closed-ended funds. They periodically offer to buy back shares from shareholders, which makes them unique in the mutual fund universe.

2. How do interval funds work?

Interval funds work by investing in less liquid assets and offering periodic repurchase offers to their shareholders. This allows the fund to take advantage of investment opportunities that require longer holding periods while still offering liquidity to investors at regular intervals.

3. Is interval fund a mutual fund?

Yes, an interval fund is a type of mutual fund. It combines the characteristics of both open-ended and closed-ended funds, providing a unique investment avenue for investors looking for a blend of liquidity and structured investing.

4. What is the difference between an interval fund and a mutual fund?

The key difference between an interval fund and other mutual funds is their liquidity provisions. While open-ended funds offer daily liquidity and closed-ended funds trade on exchanges, interval funds provide liquidity at specified intervals through periodic repurchase offers.

5. How do I invest in interval funds?

Investing in interval funds can be done through a brokerage or financial platform like Alice Blue. After opening an account, you can navigate to the mutual fund’s section, select your desired interval fund, enter the investment amount, and confirm your investment.

6. What are the benefits of interval funds?

Interval funds offer the advantage of investing in less liquid assets, which can potentially generate higher returns. They also provide periodic liquidity through repurchase offers, enabling investors to plan their investments better.

7. What is the largest interval fund?

The largest interval fund may vary based on the net asset value (NAV). However, well-established interval funds include the HDFC Interval Fund and the ICICI Prudential Interval Fund in the Indian market. Always consider your investment goals and risk tolerance before investing.

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