Mutual funds have bifurcated into several types offering various options to choose from. One such type is interval funds. Interval funds are much like their name; these funds work in intervals of time where you can buy or sell your units. Keep reading to know more about them and if they can be a suitable option for your requirements.
What are interval funds?
Interval funds are close-ended mutual funds that invest in different securities (equity and debt) and asset classes. They are unique because they only let investors buy and sell their units during a fixed interval. This can be quarterly, half-yearly or yearly. Interval funds can offer you exposure to alternative investment options as they invest in illiquid assets, such as forestry tracts, commercial property, business loans, etc.
Features of interval funds
Interval mutual funds have the following features:
- Moderate returns: Interval funds can offer moderate returns that may be higher than debt funds but are lower than equity funds in most cases.
- Low liquidity: Since you can only buy or sell your unit at pre-decided intervals, these mutual funds may not be ideal for an immediate financial need such as an emergency.
- Taxation: Interval funds are taxed as long-term or short-term capital gains just like other mutual funds. They are taxed as equity funds if they invest at least 65% in equity. Likewise, if they invest in at least 65% debt, they are taxed like debt funds.
- Short-term goals: Interval funds are ideal for short-term goals based on their maturity intervals. You can use them for your short-term goals like travel, car purchase, etc. However, they may not be suitable for long-term goals where inflation plays a critical role due to their intervals and low returns.
- Lump-sum payments: Interval mutual funds offer lump sum returns on maturity.
Should you invest in interval mutual funds?
Interval funds can be suitable for two reasons:
- If you need exposure to unconventional investments: Interval funds invest in private assets, forestry tracts, business loans, etc., which are not listed on stock exchanges. If you seek exposure to such illiquid assets, you can do so through interval funds.
- If you need short-term gains at low liquidity: This may seem like an oxymoron. However, interval funds have a unique feature – they cater to short-term goals but are not as liquid. You can withdraw your funds only at select intervals. So, even though the maturity period is short, the option to withdraw your funds as and when you like is missing.
To sum it up
You can consider interval funds to have a well-diversified mutual funds portfolio. However, be mindful of their limitations like mediocre returns, low liquidity, etc., before you go ahead. Once you have made up your mind, you can go ahead and download the Tata Capital Moneyfy App on your smartphone. The app has a great range of investment options to cater to all your financial goals while on the go.