What is an interval fund?
An interval fund is a type of closed-end fund that offers liquidity to investors at stated intervals – typically quarterly, semiannually or annually. This means shareholders are able to sell a portion of their shares at regular intervals at a price based on the fund’s net asset value.
Interval funds may invest across a wide range of strategies, securities and asset classes. A common misperception is that interval funds relate to a single asset class, such as real estate or private equity or corporate credit, which neglects their diversification potential.
Regulated under the Investment Company Act of 1940, interval funds are required to provide a high level of transparency into holdings and operations through regular filings with the U.S. Securities and Exchange Commission.
Why use an interval fund?
The use of interval funds has grown in recent years largely due to their ability to invest in less-liquid assets, such as high yield bonds, loans and structured products, as well as illiquid assets, such as private debt, private equity and infrastructure investments. There is no limitation on the amount of less-liquid and illiquid assets an interval fund may own.¹
Less-liquid and illiquid areas of the market may offer the potential for enhanced levels of income and return compared to traditional stocks and bonds. They also may provide a specific diversification benefit, like lowering volatility or providing access to investments with low correlation to traditional investments. These potential benefits, of course, must be weighed against the risk of investing in such assets. See more below on investor considerations.
How do interval funds compare to mutual funds?
Interval funds offer many of the benefits of mutual funds – such as low investment minimums and professionally managed portfolios – as well as the same regulatory oversight.
While open-end mutual funds may only hold a small amount of their assets in less-liquid and illiquid securities, interval funds have no such liquidity restrictions.
| Closed-end fund | Interval fund | Mutual fund | |
|---|---|---|---|
| Liquidity | Exchange traded | Periodically (typically quarterly) | Daily |
| Direct redemption | Not generally | Yes | Yes |
| Valuation | Daily | Daily | Daily |
| Pricing | Market | NAV | NAV |
| Max. illiquid investments | No limit | No limit1 | 15% |
| Taxed | 1099 | 1099 | 1099 |
Note: Closed-end fund category refers to publicly listed funds.
Investor considerations
Interval funds provide limited liquidity with no guarantee that an investor will be able to redeem their shares during a given redemption period. Because selling opportunities are restricted, an interval fund should be considered a long-term investment.
When investing in interval funds, financial professionals and their investors should first consider the individual’s financial objectives. Investment constraints such as risk tolerance, liquidity needs and investment time horizon should be taken into consideration.
Learn more
Download our brief on the interval fund structure and explanation of the illiquidity premium.