Transaction period

An interval fund is not fully open-ended and not fully closed-ended. It is both, at different times.

Most of the time, it behaves like a closed-ended fund: investors cannot buy or redeem units directly from the fund. But at fixed points, it briefly opens up. That window is the transaction period. Only during a transaction period can investors subscribe to new units or redeem existing ones directly with the fund.

Outside the transaction period, the fund is closed again, and investors who need to exit must instead sell their units on a stock exchange, where the fund is compulsorily listed.

The workbook (Chapter 6) defines the two states directly: the periods when an interval scheme becomes open-ended are called 'transaction periods'; the period between the close of one transaction period and the opening of the next is called the 'interval period.'

Two numbers set the boundaries: the minimum duration of a transaction period is 2 days, and the maximum duration of an interval period is 15 days. No redemption or repurchase of units is allowed except during the specified transaction period, during which both subscription and redemption may be made to and from the scheme. The workbook's own illustration: an interval scheme might become open-ended between January 1 to 15 and July 1 to 15 each year.

Following the workbook's own illustration. Horizon Interval Fund runs two transaction periods a year, 1–15 January and 1–15 July, each meeting the workbook's 2-day minimum duration with room to spare. The units are also listed on a stock exchange, since the gap between 15 July and the next 1 January is far longer than the workbook's 15-day maximum for an interval period.

An investor holding Rs 12,00,000 worth of units on 20 March cannot redeem directly with the fund — March falls in an interval period. She can sell her units on the stock exchange instead, at the prevailing market price. If she waits until the 1–15 July transaction period, she can redeem directly with the fund at NAV, with no exchange price gap to absorb.

Chapter 6 (Mutual Funds), the discussion of interval funds, defines transaction period and interval period together, gives the 2-day minimum and 15-day maximum figures, and illustrates with the January/July example. Expect a question on the minimum transaction-period duration or the maximum interval-period duration, and one asking when redemption is and is not allowed for an interval fund.

• Minimum transaction period is 2 days; maximum interval period is 15 days — these two numbers are easy to swap under exam pressure.
• Subscription and redemption directly with the fund are allowed only during the transaction period — at all other times, an interval fund behaves like a closed-ended fund, and the stock-exchange listing is the only exit route.
• Compulsory listing on a stock exchange applies to interval funds precisely because of this gap — it exists to give investors liquidity between transaction periods, the same reason it applies to purely closed-ended schemes.