What are Interval Mutual Funds?

Mutual funds are investment instruments that collect capital from different investors and then invest in purchasing company shares, securities, stocks or bonds. To put it simply, a mutual fund pools money from a group of investors with the aim to earn good returns on their investments. Owing to the factors that these funds offer good returns with relatively marginal risks, mutual funds are among the most popular investment option in India. These funds are managed by professional fund managers in Asset Management Companies (AMCs) to earn the highest possible returns. Government regulator Securities and Exchange Board of India (SEBI) regulates the mutual funds in India.  

Features of mutual funds

  • Money pooled together from a group of investors

  • Professional management of funds

  • Higher returns than traditional investment avenues

  • Regulated by SEBI

  • Access to larger and diversified portfolios

You can choose a mutual fund investment after considering factors like risk-appetite, or the amount of risk you are willing to take, and financial goals like short-term returns or long-term corpus building. Based on investment traits, and inherent risks, mutual funds are categorised into:

  • Equity funds: These funds invest primarily in the shares of different companies. You stand to gain if the share price of a company rises, while depreciation of prices would result in a loss. These funds involve high to moderate risks.

  • Debt funds: These funds invest in fixed income government securities like treasury bills and bonds. They also invest in corporate deposits of reputed companies. These are best suited for investors who are risk-averse, and are looking for a short-term investments.

  • Hybrid/Balanced funds: Here the portfolio is balanced by the fund manager in a judicious mix of both debt and equity funds. These funds aim to balance the risk, while aiming to earn a specific rate of interest.

Before investing in a mutual fund, you should assess your risk-appetite and financial goals. You can consider taking advice from a financial consultant. On Finserv MARKETS, you can invest in all types of mutual funds. Here, you can benefit from the advice of a qualified intermediary, who can guide you towards fulfilling your financial goals.

Based on the structure there are two types of mutual funds:

  • Closed-ended mutual funds: These are funds that issue a fixed number of units, which are then traded on the stock exchange. After being launched through New Fund Offer (NFO), they are subsequently traded in the open market just like stocks. Despite the value of this fund being based on the Net Asset Value(NAV), they are traded at prices above or lower than its real value because of the actual price being proportion to the demand and supply in the market.

  • Open-ended mutual funds: These funds do not trade in the open market. Their price is based solely on the NAV, which in turn is contingent upon the value of the fund’s underlying securities. These funds do not have a fixed maturity period.

What are interval mutual funds?

Interval funds are a type of mutual fund where the fund house allows you to purchase or sell the units only during a predetermined period. Interval mutual funds have features of both open-ended long duration and closed-ended funds. They are similar to Fixed Maturity Plans (FMPs) as your money is locked-in for a specific duration. But, unlike FMPs, where you have to subscribe at the fund’s launch, and then redeem at maturity, interval mutual funds provide multiple entry and exit points. These entry and exit points are predetermined, and can be monthly, quarterly or annual. For instance, an annual interval fund will remain closed for a year, following which it will reopen for purchase and redemption for the next two business days. Subsequently, it will close again.

Unique feature of interval mutual funds: These funds have the characteristic feature of investing in non-liquid assets like business loans, private and commercial property. These unconventional assets are not listed on the stock exchange. Though these funds largely invest in debt market, the asset class can also comprise those from the equity market.

Features of interval mutual funds

  • Allows higher liquidity: Interval mutual funds allow higher liquidity as you can invest your money for a specific time period according to your financial requirements. You can also choose to continue in the investment from one interval to the other. This is known as rollover of funds. There is no mandatory redemption at maturity. You must, however, note that interval funds cannot be redeemed before maturity. Even in the case of an emergency, where you want to exit the funds, you are not allowed to do so.

  • Interest rate protection: As compared to open-ended funds, interval mutual funds are better as it is protected from interest rate risk. As your money is locked-in for a specific period, you are protected from interest rate fluctuations. On an average, interval funds provide you with annual returns ranging from 6% to 8.5%. You must, however, note that these funds do not provide very high returns. If you are risk-averse and want a fixed income from your investment, then these are best suited for you.

  • Better for short-term goals: If you are looking for short-term returns, then interval mutual funds are the best. A lump sum amount is provided at the end of the maturity date, which can be utilised for your financial goals.

Tax implications of interval mutual funds: These funds are taxed according to their proportionate investment in debt or equity. If at least 65% of their portfolio is invested in debts, then they are treated as debt funds for taxation. If the funds are locked-in for more than three years, you will be taxed as per long-term capital gains tax. You will also be taxed for short-term capital gains on the basis of your income slab.

How to invest in interval mutual funds?

You can invest in an interval mutual fund on Finserv MARKETS, where your account is opened for free. You also have the option of investing directly in mutual funds with zero fees charged as commission. Along with the services of a qualified intermediary, you have the option of dividing your funds into smaller parts across different companies to make the most out of your investment portfolio. With low transaction cost, qualified intermediaries and hassle-free service, Finserv MARKETS is the best platform for investing in mutual funds.

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