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Interval Funds

There are several types of mutual funds available in the market. The Securities and Exchange Board of India (SEBI), has categorized the different types of schemes to help investors make informed decisions. These categorizations are based on the type of assets the scheme invests in, investment horizon, etc. One such way of categorization is open-ended funds, closed-ended funds, and interval funds. Here, we will explore the interval schemes of mutual funds and talk about the different types of interval  funds in India along with their benefits and a lot more. 

What are Interval Funds?

Interval Funds can invest in equity or debt instruments or both. The units of these funds can be purchased and/or redeemed only during specific time intervals. The fund house declares these intervals wherein the investors can sell/buy units. They are similar to closed-ended funds where you cannot purchase/redeem units frequently.

How do Interval Mutual Funds Work?

Interval Funds in mutual funds are a perfect mix of open-ended and closed-ended funds. While very few schemes are launched as interval funds, some schemes might also be listed on the stock exchange. During the permitted intervals, investors can buy/sell units are the prevailing NAV (Net Asset Value). Since the fund house determines the interval after which the units can be redeemed, the fund manager gets an opportunity to create a solid investment strategy without having to worry about redemption requests and liquidity.

Who should invest in an Interval Mutual Fund?

These are unique funds which invest in illiquid assets and are ideal for investors looking for unconventional assets. They also suit investors with short-term financial goals and low-to-moderate risk tolerance. Interval funds tend to invest in unconventional assets like commercial property, forestry tracts, business loans, etc.

Features of an Interval Fund

Here are some salient features of Interval Mutual Funds in India: 

Risks and Returns

Since you can redeem the units of an interval fund only during specified time intervals, they are highly illiquid in nature. Hence, during any emergency, you cannot redeem the units of these funds even if you are willing to pay the exit load. Also, you cannot sell the units of these funds in any secondary market.

Typically, interval funds generate returns in the range of 6-8% over a period of five years. For shorter durations, the returns are considerably lower.

Invest according to your Investment Plan

If your investment horizon matches the maturity date of the interval fund, then you can invest in it to earn short-term returns. While interval funds can invest in both debt and equity, most schemes are debt-oriented. Hence, it suits investors with lower risk tolerance and offers relatively lower returns.

Taxation

In the case of Interval Mutual Funds, the taxation rules depend on the percentage of investments made by the scheme in equity and debt. If the fund invests 65% of its total assets or more in equity and equity-related instruments, then it is treated as an equity fund for tax purposes. On the other hand, if the fund invests at least 65% of its total assets in debt instruments, then it is treated as a debt fund for tax purposes. Ensure that you read the offer document carefully and check the asset allocation that the scheme plans to follow to understand the tax rates.

List of Interval Funds in India

Based on the performance of interval funds over the last five years, here are the list of interval funds in India.

Name of the scheme Returns
1 year 3 year 5 year
IDFC Yearly Series Interval Fund – Series II 8.55 7.47 8.03
Reliance Yearly Interval Fund – Series I – Growth 8.53 7.71 7.98
Reliance Interval Fund – Annual – Series I – Retail Growth 7.99 7.46 7.85
Reliance Interval Fund – Quarterly – Series II – Retail Growth 7.60 7.43 7.82
UTI Fixed Interval Income Fund – Annual Interval Plan – Series IV – Growth 6.19 6.95 7.69


Remember, this is not a recommendation but a list of well-performing interval funds in India. Please follow your investment objective and risk profile before investing.

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