The investment industry is a dynamic world with fluctuating economic conditions. In this context, interval funds can be ideal for people looking to invest for a specific period. It is allowed to purchase or redeem the units of interval funds only during specified time period.

[Source]

Are you thinking of investing in a fund that will allow you to make short-term profits? Stick till the end of this article to find out all about interval funds!

Interval fund is one of the popular mutual funds in recent times. If you are interested in funds and investment, you must be familiar with open-ended and closed-ended mutual funds. Interval funds work as a blend of both open-ended and closed-ended funds.

Interval funds in mutual funds, similar to closed-ended funds, do not permit the investors to buy or sell units frequently. Such funds might be listed on a stock exchange. The investors can receive redemption from the fund houses at the prevailing NAV (Net Asset Value) in the permitted intervals.

[Source]

Moreover, interval funds are also similar to fixed maturity plans. In FMP, the fund manager follows a buy and hold approach, which helps to keep the expense ratio lower. Similarly, money remains invested for a fixed tenure in interval funds and cannot be redeemed before maturity.

Thus, if you wonder, "what is an interval fund”, it is a fund whereby the investors can purchase the units or sell them within a predetermined period.  Individuals mainly looking for short-term returns can opt to invest in interval funds. However, these are illiquid and cannot be redeemed before the specified time intervals.

Recently, investing in interval mutual funds has been a common trend. One can find the reasons in the following list of benefits associated with such funds.

• Investors of such funds can access institutional-grade alternative investments, including business loans and private equity. 
• The interval funds investors can repurchase shares from NAV periodically. 
• The risk associated with such funds is low since these are typically made in debt securities. 
• Interval funds can be beneficial for investors looking for short-term returns.

[Source]

Interval funds in mutual funds are more suitable for people looking for short-term returns. Moreover, the idea is to invest funds in illiquid assets. This is mainly because interval funds make investments in mostly debt securities, with a minor portion in equities as well.

[Source]

The taxation associated with interval funds in India is based on the number of assets invested in equity and debt. Note that individuals are supposed to pay taxes according to their income tax slab rate based on short-term debt funds.

• If individuals invest at least 65% of their assets in equities, they will pay taxes similar to the equity fund. 
• On the other hand, if at least 65% of the assets are invested in debt funds, the investor must pay taxes similar to debt funds. 

Mostly, interval funds are debt-oriented. Thus, long-term capital gains tax is applicable if these are held for more than 36 months. This tax is fixed at 20% with indexation benefits. On the other hand, short-term capital gains are parts of one's income and are taxed based on income tax slabs.

[Source 1]

[Source 2]

Investing in interval funds can be helpful for suitable investors. However, they should understand the fund and its characteristics before making final decisions.

1. Risks

While the risk index is lower in interval funds, the investors should also know that such funds will not be helpful in cases of emergencies. As the assets invested here are completely illiquid, the investors can hardly redeem these in other secondary markets. Even if the investors can pay the exit load, they cannot exit any time before the specified period.

2. Returns

The rate of returns from interval funds is not impressive compared to other types of mutual funds. 

3. Fund Costs

The expense ratio in an interval fund can be higher than open-ended and closed-ended funds. Expenses differ from one fund to another. In some cases, other charges such as broker commissions, front-end sales charges, and redemption fees can also be added to the expense ratio.

4. Financial Goals

Interval funds are considered suitable for investors unsure of their investment tenure. The reason is in the characterisation of interval funds as fixed income schemes. Moreover, investors wishing for a lump sum at a predetermined time can also be appropriate for such funds. They are allowed to match their investment horizon with the time interval at which they can avail the redemption.

Investors have the option of 2 different plans while investing in interval funds, direct plans and regular plans.

A direct plan is the type of mutual fund directly offered by top Asset Management Companies or fund houses. The involvement of third-party agents such as brokers or distributors is hardly present in such cases.

1. Online Process of Investing in Interval Funds

Step 1: Go to the official portal of the National Stock Exchange or Mutual Fund Utility. 

Step 2: You will find options for creating a trading account for first-time investors. Moreover, you can also visit individual fund houses or banks' official websites that offer interval funds schemes. 

Step 3: After applying for the scheme and completing e-KYC, the fund house will verify your information. 

Step 4: You can start investing once the verification is over.

Most investors prefer the online process of investment since it is convenient.

2. Offline Process of Investing in Interval Funds

You can also invest in interval funds through specific portals of banks. For this, you need to learn the best fund schemes available in different banks. You can then search for the forms for investing in such schemes. You will have to download these forms, print them and fill them out offline. It will require the following documents.

• Government ID Proof 
• Government Address Proof
• Cancelled Cheque Leaf 
• Demand Draft 

You can then submit them to the concerned branch or its Registrar and Transfer Agent (RTA).

3. Investing in Interval Funds Through Mobile Applications

Most banks and fund houses have their mobile applications, enabling the investors to use the same in the mutual fund investment process. These apps provide detailed information on all the available fund schemes, account statements, purchasing or selling units, etc.

Another type of plan in mutual fund investment is a regular plan. In such plans, investors use an intermediary in the process of investment. Brokers, advisors, or distributors help the investors make the right choices and decisions in terms of their investment.

The charges of the intermediaries increase the expense ratio. For this, you will have to find a broker. You can do this by searching trading platforms or taking suggestions from peers. After charging a fee amount, the broker will guide you through the suitable interval fund scheme.

[Source]