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One-minute guide to understanding | Interval funds

One-minute guide to understanding | Interval funds
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First Published: Thu, Jun 02 2011. 08 58 PM IST
Updated: Thu, Jun 02 2011. 08 58 PM IST
WHO AM I?
I am a type of mutual fund scheme whose units can be bought and sold only during a specified time interval, say, 15 days or even three months or any other time period, which is predetermined by the fund house.
Though I can invest in both equities and debt, I mostly invest in debt securities. I am taxed like any other mutual fund depending on the quantum of my investment in equities or debt. If I invest at least 65% of my portfolio in debt securities, I am taxed like a debt fund. Similarly, I am taxed like an equity fund if I invest at least 65% in equities.
WHOM DO I RESEMBLE?
I combine the characteristics of both closed-end and open-ended funds. Just like closed-end funds, I do not permit regular buying and selling and remain closed for the time interval specified by my fund. Moreover, like other close ended funds, my units are also listed on stock exchanges.
However, I am not totally like closed-ended funds that usually do not allow transactions for a long period, say two or three years. Though I do not permit buying and selling of units any time, I resemble open-ended funds because I open every now and then and do not remain closed for long periods.
The securities in which I invest mature on or before the time interval you get for transactions in me. So, you do not lose out on returns. In that sense, I am similar to fixed maturity plans (FMPs). FMPs, too , have a fixed tenor but you can redeem your investments prematurely by paying an exit load. I do not allow this. Also, in FMPs there is no facility of roll-over, but I let you roll over your investments from one specified period to another.
WHAT’S GOOD ABOUT ME?
Investors who require lump sums at a predetermined time can safely invest in me by matching their horizon with the time intervals at which I allows redemption. I help save for short-term goals with a specific time period.
RED FLAGS ABOUT ME
I wouldn’t be of much help in case of an emergency. Even if you are ready to pay an exit load, you can’t exit me before or after the specified time period. Also, since I mostly invest in debt securities, I do not provide very high returns and, therefore, am suited for those with low risk appetite.
—Abhishek Anand
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First Published: Thu, Jun 02 2011. 08 58 PM IST