The Indian mutual fund universe is large and diverse. To help investors make informed decisions, SEBI (Securities and Exchange Board of India) classifies mutual fund schemes based on factors such as asset allocation, investment horizon, risk profile, and liquidity.
One of these important classifications—though less commonly discussed—is Interval Funds. Sitting between open-ended and closed-ended schemes, interval funds offer a unique structure and investment approach that appeals to a specific class of investors.
This blog explains what interval funds are, how they work, who should invest, their features, taxation, and the top interval funds in India based on performance.
What Are Interval Funds?
Interval Funds are mutual fund schemes that invest in equity, debt, or a mix of both, but with a unique twist—
👉 You can buy or redeem units only during pre-specified intervals, as announced by the fund house.
These intervals may occur monthly, quarterly, semi-annually, or annually, depending on the structure of the scheme.
Outside these intervals, investors cannot buy or sell units, making these funds similar to closed-ended schemes in terms of liquidity restrictions.
In essence, interval funds are an innovative hybrid between open-ended and closed-ended funds.
How Do Interval Mutual Funds Work?
Interval funds allow transactions only during specific windows declared by the AMC (Asset Management Company). During these intervals:
- Investors can buy or redeem units at the prevailing NAV.
- The NAV reflects the current value of the fund’s underlying assets.
Because redemption pressure is minimal between intervals, the fund manager gets the freedom to invest in illiquid or unconventional assets, such as:
- Commercial real estate
- Business loans
- Forestry tracts
- Long-tenure debt instruments
This makes interval funds especially useful for strategies that require stability, patience, and medium-term horizons.
Who Should Invest in Interval Mutual Funds?
Interval funds are suitable for a specific category of investors:
✔ 1. Investors Seeking Unconventional Assets
Since these funds often invest in illiquid and unconventional instruments, they appeal to investors looking beyond traditional equity or debt.
✔ 2. Short-Term Financial Goals
For investment horizons of 2–5 years, interval funds can provide reasonable stability and predictable returns.
✔ 3. Low to Moderate Risk Tolerance
Most interval funds in India are debt-oriented, making them ideal for conservative investors who prefer lower risk.
✔ 4. Investors Who Do Not Need Liquidity
Interval funds restrict redemption; hence, they suit those who don’t need emergency access to invested funds.
Features of Interval Funds
🔸 1. Limited Liquidity
You can redeem units only during declared intervals.
No early redemption is allowed—even with exit load.
🔸 2. NAV-Based Transactions
During intervals, purchases and redemptions occur at the prevailing NAV, just like open-ended funds.
🔸 3. Investment in Illiquid Assets
These funds often invest in assets that require longer holding periods.
🔸 4. Suitable for Short-Term Goals
Interval funds are ideal for investors whose investment horizon matches the reset period of the scheme.
Risks and Returns
Because interval funds restrict liquidity, they carry higher liquidity risk.
You cannot sell units during emergencies or on secondary markets.
In terms of performance:
- Typical returns range between 6%–8% over five years
- Shorter durations usually yield lower returns
- Most funds offer moderate and stable returns due to debt-oriented portfolios
Taxation of Interval Funds
Taxation depends on the asset allocation of the fund:
If ≥ 65% is invested in equity
✔ Treated as an equity fund
- Short-Term Capital Gains (STCG): 15%
- Long-Term Capital Gains (LTCG): 10% above ₹1 lakh
If ≥ 65% is invested in debt
✔ Treated as a debt fund
- STCG: Taxed as per your income slab
- LTCG: 20% with indexation (if applicable under prevailing tax rules)
💡 Always check the Scheme Information Document (SID) to confirm the tax treatment.
Top Interval Funds in India (Based on 5-Year Performance)
Below is a list of some interval funds and their historical returns:
|
Name of the Scheme |
1-Year |
3-Year |
5-Year |
|
IDFC Yearly Series Interval Fund – Series II |
8.55% |
7.47% |
8.03% |
|
Reliance Yearly Interval Fund – Series I – Growth |
8.53% |
7.71% |
7.98% |
|
Reliance Interval Fund – Annual – Series I – Retail Growth |
7.99% |
7.46% |
7.85% |
|
Reliance Interval Fund – Quarterly – Series II – Retail Growth |
7.60% |
7.43% |
7.82% |
|
UTI Fixed Interval Income Fund – Annual Interval Plan – Series IV – Growth |
6.19% |
6.95% |
7.69% |
These returns indicate the steady and stable performance of interval funds over time.
Advantages of Interval Funds
✔ Predictable and stable performance
✔ Ideal for short-term goals and lower risk appetite
✔ Ability to invest in unconventional and illiquid assets
✔ Less redemption pressure on fund managers
Disadvantages
✘ Poor liquidity; redemptions allowed only at set intervals
✘ Limited availability of interval schemes in India
✘ Lower returns compared to equity-oriented mutual funds
Conclusion
Interval funds carve out a unique space in India’s mutual fund ecosystem. With limited liquidity, moderate risk, and steady returns, they are suitable for investors seeking:
- Exposure to unconventional assets
- Medium-term investment horizons
- Lower volatility
- Minimal need for liquidity
Although not as popular as open-ended or closed-ended funds, interval funds continue to be a useful option for specific investor profiles.
If your investment horizon aligns with the interval structure, and you prefer steady, debt-like returns, interval funds can be a valuable addition to your portfolio.