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What Are Interval Funds? 5 Factors To Consider Before Investing In One

By Author: swarali chavan
Total Articles: 27

Mutual funds are a scheme where several investors pool in money that are later invested in various assets such as debt funds, liquid assets, and so on. The best part about mutual funds is that investors have the advantage of choosing from an array of mutual funds like equity, debt, hybrid, interval funds, and so on.

Each of these types are categorised based on the investment objective, asset class, and structure. These types of mutual funds has a popular sub-type respectively. So, those who opt for equity mutual fund usually go for a href="https://www.angelbee.in/elss/">ELSS mutual funds owing to the tax benefits they offer.

While investors usually select equity and debt funds, thanks to its demand in the market, another type of fund that is catching up with the trends are interval funds.

Interval funds:
What is interval funds? Here the investors can purchase or redeem the units of a mutual fund scheme only during the intervals that fund houses declare. The predetermined intervals could be monthly, quarterly, half-yearly, or yearly. Interval funds are a combination of open-ended and close-ended funds. Very few mutual fund schemes are launched as interval funds.

Interval funds invest in illiquid assets like forestry tracts, private assets, commercial property, and business loans. If you are looking to invest in alternative assets, then you can consider such a fund.

However, you have to keep specific tips in mind before taking the plunge:

1) Risk: Intervals funds are not ideal to meet immediate concerns. You cannot redeem them in secondary markets. You also cannot exit from the scheme before the fixed date, despite paying the exit load charges.

2) Returns: Such funds offer returns immediately which are towards the lower end. Most of the interval funds in India offer returns which range around 6 to 8.5 per cent. In comparison to other mutual funds, they are deficient.

3) Investment horizon: These funds are meant to achieve short-term goals. Investors whose horizon matches with the maturity dates of interval funds can gain short-term returns. Your goals should be concrete to utilise the lump sum amount that interval funds offer after the maturity date.

4) Financial goals: Interval mutual funds are best suited for investors who are unsure about their investment horizon. They are also perfect for investors who wish to earn a lump sum amount at a predetermined interval. For this purpose, investors have to match their horizon with the interval date. Also, these funds are debt oriented and carry low-risk levels.

5) Taxation: It all zeroes down to the quantum of investment. So, if 65 per cent of your portfolio is debt, they are treated as debt funds and vice versa for taxation purpose. Since such funds are mostly into debt funds, the long-term capital gains are taxable, if held more than 36 months.

Before investing in an interval fund, you have to analyse it from different angles. Have several quantitative and qualitative parameters in place before investing in any interval funds.

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