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How to make the best use of Interval Mutual Funds?

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INVESTORS are looking for better choices for their portfolio in these tough times and hence, this is the time when one needs to look at all the alternatives.

One category of funds that often misses attention is interval funds so, it is vital to focus on the offerings that are available in this area.

These funds provide a good choice and in many cases also offer stability to the portfolio. Here is a closer look at this category of funds and what they actually represent, so that the investors can make a proper decision in this regard.

Nature of funds:

 Interval funds have the features of both close-ended as well as open-ended funds. This means that these funds do not allow regular buying and selling of units like in a close-ended fund on a daily basis and this is where it resembles this category.

However, after a certain period of time or interval that is specified by the fund there is a small time wherein, it will allow investors to buy and sell units. The presence of this feature makes it an open-ended fund. So except for a few days that are fixed, the investor will not be able to buy and sell units, hence they have to be aware of the exact time period when the fund will allow this facility before they actually invest in the fund. In terms of investment, the fund can invest in either debt or equity, but most of the funds that are actually present in the market are debt-oriented funds, hence this shows the nature of the fund.

Comparison to FMP:

 

When it comes to an interval fund there is a lot of similarities with a fixed maturity plan, though there are some differences also.

The interval fund usually buys securities that mature around the date of the time or interval when it will once again open for further subscription. This will give it the feature of a FMP where the portfolio is constructed in this particular manner.

However, unlike a FMP the fund will not come to an end at the date that is specified, but rather it will allow for the fund to actually ensure that those investors who want to redeem their units can do so while others can also enter the fund.

This in a sense allows for the rollover of the investment without undertaking a lot of extra efforts. This represents an area where there is convenience for the investor.

Usefulness:

The fund is not useful if there is a need for money to be withdrawn at any time in between because the closed nature does not allow for the necessary feature. While these are listed on the exchanges in practical terms the required facility might not be available when required.
However, for someone who wants money at a specified point of time and that too a lumpsum then this would turn out to be a very good option to consider. The other side is that the fund is also useful to all those who want to take a lower amount of risk, as this will take out the interest rate risk in the investment just like a FMP . Investors who do not want to undertake too much effort of moving their money around at regular intervals can choose this option and then take the money out when they want and roll over the amount in the intermediate period.

Happy Investing!!

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You can write back to us at PrajnaCapital [at] Gmail [dot] Com

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