Interval schemes in mutual funds refer to a specific type of scheme where investors can buy or sell units only during specified intervals rather than on a daily basis.
This is typically done for schemes that invest in illiquid assets or those that may not have readily available market prices for valuation.
1.Purpose:
Interval schemes are mutual fund schemes that do not allow daily transactions like regular open-ended funds. Instead, they have specific pre-determined intervals during which investors can buy or sell units.
2. Asset Types:
These schemes are often used for investments in illiquid assets such as real estate, private equity, distressed debt, or loans, where the underlying assets do not have daily market quotations.
3. Valuation and NAV Calculation:
Since these assets are not traded daily, their valuation may be uncertain. NAV (Net Asset Value) is typically calculated less frequently, often monthly or quarterly, depending on the scheme's guidelines.
4.Investor Eligibility:
Investors can enter or exit the scheme only during the specified intervals. This ensures fairness and avoids issues with continuous redemptions that could harm remaining investors due to illiquidity.
5. Regulatory Framework:
The Securities and Exchange Board of India (SEBI) regulates mutual funds in India, including interval schemes. SEBI sets guidelines regarding the structure, operation, and disclosures for such schemes to protect investor interests.
6. Risk and Returns:
Interval schemes may offer higher returns due to investments in less liquid or alternative assets, but they also carry higher risks. The lack of daily liquidity can mean investors might not be able to exit when desired, depending on market conditions.
7. Examples and Popular Usage:
Real estate funds, distressed debt funds, and funds focusing on infrastructure are common types of interval schemes in India. These sectors typically have assets that are not easily liquidated at short notice.
8.Investor Considerations:
Potential investors should carefully review the scheme’s offer document, understand the intervals for transactions, the nature of underlying assets, and the risks involved. Interval schemes may not be suitable for investors needing immediate liquidity.
In conclusion, interval schemes in Indian mutual funds provide a structured way to invest in assets that lack daily liquidity. They cater to investors looking for exposure to less liquid markets or assets while managing the associated risks through controlled transaction intervals.