Interval fund

Download our brief on the interval fund structure and explanation of the illiquidity premium.

Interval fund

Download our brief on the interval fund structure and explanation of the illiquidity premium.

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 fundInterval fundMutual fund
LiquidityExchange tradedPeriodically
(typically quarterly)
Daily
Direct redemptionNot generallyYesYes
ValuationDailyDailyDaily
PricingMarketNAVNAV
Max. illiquid investmentsNo limitNo limit115%
Taxed109910991099

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.

  • Interval funds must have liquid assets to cover repurchase offers. Otherwise, there is no limit.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

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