Interval fund
Also written Interval scheme
A scheme that is largely close-ended but opens for subscription and redemption during pre-specified transaction periods, with compulsory stock exchange listing to give an exit in between.
In plain language
Open-ended schemes let investors come and go on any business day. Close-ended schemes take money only in the NFO and return it at maturity, leaving the stock exchange as the only exit in between. Interval funds sit between the two.
They are largely close-ended, but become open-ended at pre-specified intervals. The workbook's illustration: a scheme might be open between 1 and 15 January and 1 and 15 July each year. During those windows investors can buy units from the scheme and sell units back to it, at NAV-based prices. Outside them, the scheme itself does not transact.
The benefit, in the workbook's words, is that unlike a purely close-ended scheme, investors are not completely dependent on the stock exchange to buy or sell units.
Between windows they still are. To give an exit route between intervals, the units must be compulsorily listed on a stock exchange — and there, as with any close-ended scheme, liquidity may be poor and units often trade at a discount to NAV.
How it works
The workbook's vocabulary:
| Term | Meaning |
|---|---|
| Transaction period | When the scheme becomes open-ended — subscriptions and redemptions allowed to and from the scheme |
| Interval period | From the close of one transaction period to the opening of the next |
The rules as stated:
- Minimum duration of the transaction period: 2 days.
- Maximum duration of the interval period: 15 days.
- No redemption or repurchase is allowed except during a transaction period.
- Units are compulsorily listed on stock exchanges.
The workbook's figures do not fit its own example. With windows of 1–15 January and 1–15 July, the gap between transaction periods is about five and a half months — far longer than a "maximum" interval period of 15 days. Read literally, a 15-day maximum interval would make the scheme open-ended for most of the year. For the exam, learn the two numbers exactly as the workbook states them (minimum 2-day transaction period; 15 days for the interval period) and recognise the January/July illustration as its example of the structure.
Interval schemes are treated alongside open-ended schemes elsewhere in the workbook: the SID of open-ended and interval schemes is updated half-yearly, and changes to fundamental attributes follow the same addendum and exit-option procedure. And an advertisement for an IDCW payout at the completion of the interval period must say that "the entire distributable surplus … at the completion of the interval period shall be distributed".
A worked example
Ashok invests Rs 2,00,000 in an interval debt fund during its January transaction period at an NAV of Rs 10.00, receiving 20,000 units (ignoring stamp duty). The scheme follows the workbook's illustration: open 1–15 January and 1–15 July. Figures are illustrative.
Scenario 1 — he waits for the window. On 5 July the NAV is Rs 10.35. He redeems directly with the scheme:
20,000 × Rs 10.35 = Rs 2,07,000
Scenario 2 — he needs money in April. The scheme will not redeem. He must sell on the stock exchange, where units trade thinly. The NAV is Rs 10.20, but the best buyer bids Rs 9.90 — a 2.9 per cent discount.
At NAV: 20,000 × Rs 10.20 = Rs 2,04,000
On exchange: 20,000 × Rs 9.90 = Rs 1,98,000
Cost of exiting between windows = Rs 6,000
And that assumes a buyer exists for all 20,000 units. The workbook is explicit that listing does not guarantee liquidity, and that buyers have the bargaining power because they have many alternatives.
The lesson for a distributor: an interval fund suits money that will not be needed before the next transaction period.
Why NISM asks about it
Chapter 2 (Concept and Role of a Mutual Fund), section 2.2.1, explains interval funds alongside open-ended and close-ended schemes, with the transaction-period and interval-period definitions; Chapter 5 and Chapter 10 apply open-ended rules to interval schemes. A Chapter 2 sample question uses interval funds as an option. Expect questions on how interval funds combine open and close-ended features, what a transaction period is, and why listing is compulsory.
Common exam traps
- Largely close-ended, open-ended only in transaction periods. Not the other way round.
- Redemption with the scheme is allowed only during a transaction period.
- Listing is compulsory to provide an exit between intervals — but listing does not guarantee liquidity, and units usually trade at a discount to NAV.
- Transaction period minimum: 2 days. Interval period: the workbook says "maximum 15 days". Its own January/July example implies a much longer interval — learn the stated figures, and flag the inconsistency to yourself.
- Transaction period vs interval period: the transaction period is when it is open; the interval period is the gap between.
- Interval schemes share several open-ended rules, such as half-yearly SID updates.
Where this is taught
- Series V-A · Chapter 2: Concept & Role of a Mutual Fundintroduced here
- Series XXI-B · Chapter 6: Mutual Fundsintroduced here
- Series II-B · Chapter 10: Mutual Fund Productsintroduced here
- Series V-D · Chapter 2: Concept & Role of a Mutual Fundintroduced here
- Series V-B · Chapter 2: Concept and Role of a mutual fundintroduced here
- Series X-A · Chapter 11: Mutual Fundintroduced here
Related terms
- Net Asset ValueThe net assets of a mutual fund scheme divided by the number of units outstanding — what one unit of the scheme is worth on a given day, after every liability except the unitholders' own.
- Mutual fundA trust registered with SEBI that pools money from many investors and invests it in securities on their behalf — not a different product from shares and bonds, but a different way of owning them.
- Scheme Information DocumentThe offer document setting out everything about a particular scheme that a prospective investor ought to know before investing — prepared in SEBI's format, vetted but not approved by SEBI.
- UnitThe share of a mutual fund scheme that an investor's money is translated into — typically carrying a face value of Rs 10, and worth whatever the scheme's NAV is on the day.
- Fixed Maturity PlanA close-ended debt scheme whose portfolio maturity is aligned to the scheme's own maturity date, so the investor who stays to the end has a reasonably visible outcome — though never a guaranteed one.
- Fundamental attributesThe core features of a scheme — its investment objectives, policies and terms — on which investors relied when they invested. Changing them requires notice to every unit-holder and a no-load exit at NAV.
- Open-ended fundA mutual fund scheme with no maturity date that keeps selling and redeeming units directly after its NFO, at NAV-linked prices, so its number of units and unit capital change every day.
- Close-ended fundA mutual fund scheme that sells units only in its NFO, runs for a fixed period and redeems all units at maturity — in between, investors can exit only by selling on the stock exchange, where listing is compulsory.