An interval fund is a type of closed-end fund that is not listed on an exchange and periodically offers to repurchase a limited percentage of outstanding shares from its shareholders. The shares of interval funds do not trade on the secondary market, and they tend to provide higher returns than open-end funds. They can invest in alternative types of assets, such as commercial real estate, consumer loans, debt, and other illiquid assets, which helps increase their yields. Interval funds can provide investors with access to less liquid investment strategies than open-end funds in an attempt to enhance risk-adjusted returns and can be used as an alternative source of return and/or income.
Interval funds offer liquidity to investors at stated intervals, typically quarterly, semiannually, or annually. Shareholders are able to sell a portion of their shares at regular intervals at a price based on the funds net asset value. Interval funds may invest across a wide range of strategies, securities, and asset classes. They are regulated under the Investment Company Act of 1940 and are required to provide a high level of transparency into holdings and operations through regular filings with the U.S. Securities and Exchange Commission.
However, interval funds are essentially illiquid, especially compared to open-end mutual funds. The restricted selling opportunities make interval funds a long-term, mostly illiquid investment. They provide limited liquidity with no guarantee that an investor will be able to redeem their shares during a given redemption period. Because of the illiquid, long-term structure of interval funds, they help restrict normal investor "buy high/sell low" behavior.
In summary, interval funds are a type of closed-end fund that offers liquidity to investors at stated intervals and periodically offers to repurchase a limited percentage of outstanding shares from its shareholders. They tend to provide higher returns than open-end funds and can invest in less liquid investment strategies than open-end funds. However, they are essentially illiquid and should be considered a long-term investment.
