Interval Fund: Meaning, Features, And Should You Invest?
In the last decade, while the US mutual fund space grew at a compound annual growth rate (CAGR) of 8%, the Indian mutual fund grew with a 20% CAGR and reached an all-time high of INR 72.2 lakh crore1. Given this exponential growth and expansion of the space, regulators like the Securities and Exchange Board of India (SEBI), along with other industry participants like the fund houses, continuously evolve to accelerate growth, ease investor journey, and address unique investor pain points.
Different mutual fund schemes are categorised based on their portfolio composition, management style, redemption technique, and so on, to aid informed investing. Based on their method of redemption or liquidation, mutual funds can be categorised as open-ended, closed-ended, or interval funds. While open-ended and closed-ended funds are well known, interval mutual funds in India might be less well known. Therefore, this blog decodes the meaning, features, and other aspects of interval funds to help invest optimally.
What Is An Interval Fund?
Funds that allow investors to purchase and sell units in specific time intervals are called interval funds. The intervals are declared by the fund house in its prospectus and can range from quarterly to annually, wherein the investor can liquidate their investment. These funds act as a bridge and offer a blend between open-ended and closed-ended funds.
Open-ended mutual funds allow redemption of units anytime, while closed-ended funds have fixed maturity and do not allow redemption of units whenever, but they trade on the stock exchange. Therefore, as a hybrid, interval fund in India allows redemption in a specific window and can also trade on the stock exchange to offer secondary market liquidity.
The fund managers of these funds can create long-term growth investment strategies without liquidity or redemption roadblocks. Therefore, the interval fund liquidity constraints are balanced with potentially higher-yielding assets in its portfolio.
Let us now analyse the interval scheme features to help understand this investment opportunity better.
Features Of Interval Funds
Discussed below are the key features of interval funds.
1. Starting Interval Fund NAV Calculation: During the inaugural subscription window, investors purchase units at the current Net Asset Value (NAV), which is determined daily depending on the market value of assets held in the portfolio. After this initial phase, further subscriptions might occur during specific intervals. Redemption in subsequent intervals, as well, is at the prevailing NAV.
2. Stock Market Trading: Similar to closed-end funds, interval funds in India can be listed on stock exchanges such as the NSE or BSE, which provide ongoing secondary market trading of units outside of redemption periods. However, trading might be suspended during the announced redemption intervals to align interval redemption at NAV.
3. Specified Transaction Periods: STPs refer to the specific interval in which an interval fund redeems its units at an NAV. For instance, an XYZ Interval fund can announce quarterly intervals, opening on 29 November 2025, for a period of 15 days.
4. Investment Focus: While interval funds can exist across equity, debt, or hybrid mutual fund categories, interval funds are primarily debt-oriented. This enables exposure to illiquid and high-yield assets, with some equity or other exposure. However, the investment philosophy of the fund can differ based on the objectives.
5. Lock-in and Redemption Window: Outside the specified intervals, units are locked. The inability of investors to redeem early encourages disciplined investing and lowers NAV volatility caused by abrupt outflows.
6. Redemption Window Announcements: The fund house uses emails, notifications on its website, and AMFI to publicise the redemption window opening. During this time, investors make redemption requests, which are processed at the last day's NAV or the average NAV for the window, as indicated.
7. Interval Fund Minimum Investment: The minimum investment requirement can differ from one fund to another. For instance, the Nippon India Annual Interval Series I Inst requires a minimum investment of INR 5,0002. However, often these funds do not support SIP investments3.
8. Tax Treatment: Mutual funds are taxed based on the nature of their portfolio holdings, rather than redemption methodology. Since interval funds are mostly debt funds, the table below shows the taxation of debt funds.
| Particulars4 | Tax Rate |
| Short Term | At applicable tax slabs |
| Long Term | Not Applicable |
Let us now analyse the return and risk profile of these funds.
Returns And Risk Profile
Interval debt funds often offer comparatively greater returns compared to liquid or open-ended debt funds because interval fund managers have a greater scope of sculpting sustained growth plans. The table below comparatively analyses the risk and return profile of open-ended vs closed-ended vs interval funds.
| Parameters | Open-Ended Fund | Interval Fund | Closed-Ended Fund |
| Liquidity | Investors can buy and sell whenever they want | Investors can buy and sell only at specific intervals | Investors can redeem the funds only at maturity |
| Secondary Market | Unavailable | Can be traded on stock exchanges | Can be traded on stock exchanges |
| Risk | Higher volatility from flows | Low-moderate; controlled flows | Since locked-in, liquidity risk might exist |
| Return | Returns can be impacted by the need to hold cash for redemptions. | Might be higher-yielding than open-ended funds and have higher liquidity than closed-ended funds | Potential for higher returns because the fund managers do not have redemption constraints |
Based on these inherent features of this asset, investors must understand the investor profile interval funds suit and invest in mutual funds accordingly.
Who Should Invest?
Illustrated here are various investor categories that must be considered before investing in interval funds.
- Moderate Liquidity Seekers: Individuals with predictable short-to-medium-term goals, like down payments or education fees, who do not need daily access but want periodic exits.
- Disciplined Long-Term Holders: These funds might be suitable for long-term investors who can have a disciplined approach towards investing.
- Low-to-Moderate Risk Takers: The fund is suitable for conservative investors with a low to moderate risk profile.
However, successful investing requires optimal portfolio diversification. Therefore, investors can explore fixed-income assets with a similar low-to medium risk profile, like corporate bonds, high-yield FDs, and so on.
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FAQs On Interval Funds India
1. Are interval funds safe?
Investors must consider their risk tolerance to judge the safety of any investment, including interval funds. Since interval funds are primarily debt assets, they often have a low-to-medium risk profile.
2. Can I withdraw anytime?
No, interval funds cannot be redeemed anytime; they become redeemable at specific intervals as per their prospectus and announcements.
3. How are interval funds taxed?
Mutual funds are taxed based on the composition of their portfolio and not on the basis of redemption plans. Since interval funds are primarily debt funds, in the case of STCG, they are taxed at tax slabs and in the case of LTCG, it is not applicable.
4. Do interval funds allow SIP investments?
In most cases, interval funds do not support SIP investments because subscriptions are typically allowed only during specified intervals announced by the fund house.
5. How is an interval fund different from a closed-ended fund?
Closed-ended funds can be redeemed only at maturity, while interval funds allow redemption at predefined intervals and may also be traded on stock exchanges in between.
References:
1. Economic times, accessed from: https://economictimes.indiatimes.com/mf/mf-news/indian-mutual-fund-industry-aum-grew-20-cagr-in-past-10-years-vs-8-in-us-franklin-templeton-india-mf/articleshow/121953189.cms
2. Value research, accessed from: https://www.valueresearchonline.com/funds/5003/nippon-india-annual-interval-series-i-inst/
3. Value research, accessed from: https://www.valueresearchonline.com/learn/mutual-funds/how-to-invest-in-interval-funds-step-by-step/
4. AMFI, accessed from: https://www.amfiindia.com/investor/knowledge-center-info?zoneName=TaxRegimeForMutualFunds
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