Interval Funds are a kind of mutual fund scheme in which the units can be purchased and sold only at predetermined time intervals. For example, every fifteen days or any other time period as specified by the fund house. Although Interval Funds can invest in debt and equities, it usually invests in debt securities. Just like any other mutual fund, Interval Funds are taxed according to how much is invested in debt or equities. It will be taxed like a debt fund if at least 65% of the portfolio is invested in debt securities. Likewise, it will be taxed like an equity fund if at least 65% is invested in equities.
Interval Funds has characteristics similar to that of open-ended funds and closed-end funds. Similar to closed-end funds, interval funds also do not have units listed on stock exchanges. It does not allow regular buying and selling. During the time interval that’s specified by the fund, it remains closed. However, closed-end funds don’t usually permit transactions for long periods (maybe two or three years). Interval Funds are not similar to closed-end funds in this aspect, but are more like open-ended funds, as it does open once in awhile.
Although many people generally compare Interval Funds with open-ended funds and closed-end funds, it also has characteristics similar to that of fixed maturity plans (FMPs). Similar to fixed maturity plans (FMPs), the securities in which Interval Funds invest in matures on or before the time interval. This means that you will not be losing out on returns. However, unlike fixed maturity plans, you cannot pay an exit load and redeem your investments prematurely. Interval Funds permit the individual to roll over their investments from one specified period to another. This facility is not available in fixed maturity plans.
What’s the best thing about Interval Funds? It helps individuals save for short-term goals with a specific time period. If you would like to save up for an event that you know requires funding, you can go for Interval Funds as you can decide the time interval that allows you to redeem the amount. For example, if you would like to save up for your wedding which you see on the horizon in around one year, you can use Interval Funds to save up enough for the big day.
What’s not good about Interval Funds? The major drawback of Interval Funds is that it does not help in financial emergencies. Even if you were ready to pay an exit load to redeem your investment, Interval Funds do not permit this. It simply cannot be exited before or after the specified time period. Another drawback is that Interval Funds so not provide very high returns as it mostly invests in debt securities. That is why Interval Funds are ideal for those who have a low risk appetite.
GST rate of 18% applicable for all financial services effective July 1, 2017.