Investing money is a great way to let your money grow and yield upon itself. The risks associated with investments vary vastly from stock to stock and the type of investments you make. Investing in mutual funds is a relatively medium-risk option that yields quite attractive returns. Currently, many people are putting their money in interval funds in hopes of higher returns while keeping the risks low. If you do not know what is interval funds and how to go about it, read on to find out.
What is an Interval Fund?
Interval funds are a type of mutual funds in which you can buy or sell stocks for a pre-decided time interval. Interval funds invest in equity as well as debt. You can periodically buy a particular portion of the outstanding shares at net asset value. This type of investment is mostly illiquid as it cannot be sold on exchanges easily. They also have a high expense ratio that makes buying interval funds an expensive affair. However, they tend to attract various people for their low volatility and attractive returns.
Interval funds are perfect for you if you are looking to invest in alternative assets.
Interval funds will yield a fixed lump sum after a certain period. Hence, they are best suited for investors with short-term financial goals and low-risk appetite.
You need to keep in mind that you cannot exit before the stipulated period. Therefore, this investment will not help you during emergencies.
Over a period of 5 years, you can expect returns around 6% to 8.5%.
Long-term capital gains taxes are applicable on interval funds held over 3 years or more. This has indexation benefits. Thus, the purchase price of securities is adjusted for inflation.
Pros
- It is a close-ended investment that has much higher returns than open-ended mutual funds.
- The long-term and illiquid structure makes them safe.
- You get access to institutional grade alternatives with a lower minimum.
Cons
- They are illiquid, and the cash cannot be withdrawn during emergencies.
- As repurchase takes place on a pro-rata basis, you may not be able to retrieve all your shares during your redemption window.
- The fees are higher.
- Although the minimum investment is low for a private equity investment, they are high when compared to open-end mutual fund investments.
Thus, interval funds are best if you are in it for the long haul. The only things you need to consider are the high fees and illiquidity. If you do not depend on interval funds for emergencies, they are a huge boon.
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