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Definition: Interval Fund (Scheme)
The interval fund (scheme) is a kind of a mutual fund scheme wherein the scheme offering combines features of open-ended and close ended funds. This implies that the fund is open for sale or redemption during periodic, pre-determined intervals of time.
A mutual fund is a collective investment vehicle for investing pools of investor money into stocks or bonds. It combines the diversification benefits with professional money management and reduced liquidation risk. Investor into a mutual fund, gets an equal/proportional share of the fund’s funds gains, losses, income & expenses.
Put into simpler words, an Interval fund is a kind of mutual fund whose redemption features make it a hybrid between open ended and close ended mutual funds. The units of the Interval fund might be traded on the exchange, or be available for OTC (Over the counter) trading at NAV (net asset value) related pricing, during the redemption / repurchase or sale window. An interval fund will periodically offer to repurchase its mutual fund units from the investors at regular intervals of time, say every 3, 6 and 12 months. The investors are not obliged to buy/sell fund units when this happens
Features of an Interval Fund
• The mutual fund units can be bought or sold only during a specified time interval (say fortnightly or every 3 months), that is determined by the respective fund house.
• Similar to close-ended funds, regular buying and selling is not permitted, and the fund remains closed for a time period specified by the fund manager. Also the interval fund units are listed on stock exchanges like close ended funds.
• Similar to open-ended funds, interval funds allow buying and selling more than once during its life term, however this is not so frequently done, rather it is at the discretion of the fund house and manager.
• Interval funds generally invest in securities that mature in the set time interval before the next redemption/repurchase window open. In this sense, Interval funds bear resemblance to fixed maturity plans (FMPs).
Advantages of Investing in an Interval fund
• It helps investors who are seeking short term investments at regular periods of time.
• Matches investors’ investment horizon by allowing lumpsum investments at pre-determined instances of time.
• Interest rate risk is lesser for debt interval funds.
Disadvantages of Investing in an Interval fund
• The investment into an Interval fund would be locked in for a specified time period and cannot be withdrawn in case of an emergency.