September 22, 2025
4 mins read
Interval funds are a unique type of investment vehicle designed specifically to have characteristics of both traditional and closed-ended mutual funds. Unlike a traditional fund, where units may be purchased or redeemed on demand, interval funds allow transactions only during designated time windows set by the fund house. Interval funds allow fund managers greater flexibility to invest for the longer term. They are under no pressure with regards to inflows and outflows on a daily basis, which is the nature of a traditional fund.
In terms of the investments made, interval funds may invest in a wider basket of assets beyond the bounds of general equity funds or debt funds, such as private debt, infrastructure projects and commercial real estate. These less liquid assets could provide the investor with diversification options not typically available in traditional mutual funds. For this reason, interval funds would be more suitable for those potential investors who have identified a specific financial journey and thus would understand and be comfortable with restricted liquidity as it is a given over an identified investment horizon.
Let me paint you a picture. Imagine you are at a railway station where trains stop only once in a while — maybe monthly, quarterly, or even annually. You can board or exit only when the train halts. That is essentially how interval mutual funds operate. You cannot just enter or exit anytime. You wait for those predetermined intervals, and transactions are executed at the prevailing NAV. The transparency is there, but the flexibility is not.
Now, here is the interesting bit. Because these redemption windows are so limited, fund managers can invest in assets that are not easily sold in the open market. Unlike open-ended funds, where managers might be forced to dump investments early to meet withdrawal requests, interval funds allow them to hold on to potentially high-yielding but illiquid opportunities.
Sometimes, a few schemes are even listed on stock exchanges — so if you are really desperate for liquidity, trading there can be an option. But again, this is not as straightforward as your SIP-driven equity fund. It takes patience.
Here’s where you need to be brutally honest with yourself. Interval funds are not for everyone, and that is okay. If you are the type who checks their portfolio daily and panics at a tiny dip, these might drive you insane. But if you can align your money goals with fixed redemption periods, they can fit beautifully into your portfolio.
For instance, think about a planned expense — your child’s education fee two years down the line or maybe a house down payment in three. You do not need the money tomorrow, but you also do not want it stuck for a decade. Interval funds can serve as that middle ground.
They diversify your portfolio into unconventional assets while keeping risk moderate. The trade-off? Liquidity. But if you are comfortable tying your financial horizon to those redemption schedules, interval funds can work quietly in the background, doing their job while you focus elsewhere.
Let us break down some quirks — because these funds do not behave like the mainstream ones:
The significant feature (or flaw, depending on how you see it). You can buy or redeem units only at specified intervals. No sneaky mid-month exits.
Because of limited redemptions, fund managers are free to think beyond short-term panic. They can stay invested in longer projects and avoid frequent reshuffling.
This is where interval funds shine. They give you exposure to real estate, private loans, even infrastructure. Places your typical mutual fund rarely wanders.
Some interval funds must be listed on stock exchanges. It adds a layer of liquidity, though not as smooth as cashing out an equity fund.
Fund houses set these with at least a two-day window and a 15-day gap between two such periods. It is like booking tickets only when the portal briefly opens.
Improving R-squared in mutual funds requires smart fund selection and diversification. Index funds or ETFs offer high correlation, while balanced portfolios need diversification strategies for achieving optimal R-squared values.
Choosing Index Funds: These funds aim to replicate benchmark performance, resulting in high r squared value.
Blending Active and Passive Investing: A mix of active and passive funds can ensure that investors benefit from skilled management while maintaining market correlation.
Sector-Based Allocation: Allocating funds based on specific industry sectors can influence R-Squared, depending on how closely those sectors follow the overall market trends.
Rebalancing Portfolios Regularly: Ensuring that investments remain aligned with financial goals and market conditions can optimise R-Squared.
Ultimately, what is r squared in mutual fund investments should be understood in conjunction with other performance indicators.
While it helps gauge fund correlation, investors should also assess risk factors and potential returns before making decisions.
Now, here’s a tricky bit. Interval funds are not exactly mainstream in India. You will not see influencers on Instagram hyping them. But they exist, quietly serving investors who understand their niche. Here are a few examples that have been around for years — their returns are modest but consistent, reflecting their debt-heavy nature:
Name of the Scheme | 1 Year Return (%) | 3 Year Return (%) | 5 Year Return (%) |
IDFC Yearly Series Interval Fund – Series II | 8.55 | 7.47 | 8.03 |
Reliance Yearly Interval Fund – Series I – Growth | 8.53 | 7.71 | 7.98 |
Reliance Interval Fund – Annual – Series I – Retail Growth | 7.99 | 7.46 | 7.85 |
Reliance Interval Fund – Quarterly – Series II – Retail Growth | 7.60 | 7.43 | 7.82 |
UTI Fixed Interval Income Fund – Annual Interval Plan – Series IV – Growth | 6.19 | 6.95 | 7.69 |
Here is where most people get it wrong — they jump in because interval funds sound “different.” But difference alone does not make something suitable. You really need to check three things before committing.
First, liquidity. Can you stay locked until the fund house opens the window? If not, this product will frustrate you. Second, your risk appetite. Interval funds lean towards debt and alternatives, so they are not meant for aggressive equity-style investors chasing quick growth.
Third, taxation. Depending on whether the scheme allocates more to equity or debt, your tax treatment changes — and it matters a lot in your actual returns.
If your financial goals are structured (say, paying a known expense in three years), interval funds can slide in neatly. If you like spontaneity with your money, I would say pass.
Misleading on its own: A high R-squared does not guarantee better returns or lower risks.
Ignores Fundamentals: It only shows correlation with benchmarks, not fund quality or management skill.
No insight into risk-adjusted performance: Fails to indicate volatility, alpha, or Sharpe ratio.
Limited for active funds: Can undervalue actively managed funds that deviate from benchmarks.
Historical bias: Relies on past data, which may not reflect future performance.
Here is my honest take. Interval funds are… well, unusual. They do not have the glamour of equity mutual funds or the ease of liquid funds. But they hold a quiet strength — stability. By giving managers the freedom to think long-term and explore alternative assets, they carve a very specific niche.
The catch, of course, is liquidity. You cannot just tap out whenever you like. And that, for many investors, is a dealbreaker. But if your financial horizon lines up with the redemption windows, interval funds can add a layer of diversification that feels almost old-school steady.
Taxation can be messy — equity allocation means equity taxation, debt allocation means debt taxation. You need to keep this in mind before making decisions. At the end of the day, interval funds are not built for thrill-seekers. They are built for planners. If you see yourself as one, then maybe — just maybe — these funds deserve a spot in your portfolio.
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An interval mutual fund is a type of closed-end fund that offers to repurchase its shares from investors at predetermined intervals, typically quarterly, semiannually, or annually. Unlike traditional closed-end funds, interval funds do not trade on secondary markets.
Interval funds provide access to illiquid assets, such as private equity or real estate, which may offer higher returns. The periodic redemption structure allows fund managers to invest in long-term opportunities without the pressure of daily liquidity demands.
Investors face limited liquidity, as shares can only be redeemed during specified intervals. High fees are common, with expense ratios averaging around 2.5%. Additionally, the valuation of illiquid assets may not reflect real-time market conditions, potentially obscuring true fund performance.
Unlike open-ended funds, which offer daily redemptions, interval funds provide liquidity at set intervals. While classified as closed-end funds, interval funds differ by not trading on exchanges and continuously offering new shares, combining features of both fund types.
Interval funds often invest in illiquid or alternative assets, including commercial real estate, private equity, and private credit. These investments aim to achieve higher yields and diversification beyond traditional publicly traded securities.
Investors with a long-term horizon seeking exposure to illiquid assets like private equity or real estate may consider interval mutual funds. These funds are suitable for those who can accommodate limited liquidity and are comfortable with periodic redemption opportunities.
Interval funds aim to provide higher returns by investing in less liquid assets that may offer an illiquidity premium. However, actual returns vary based on the fund's specific investments and market conditions. It's important to review each fund's performance history and strategy.
To invest in interval mutual funds, identify funds that align with your investment objectives and risk tolerance. Investments can typically be made directly through the fund company or via financial advisors during the fund's offering periods. Be mindful of the fund's specific subscription and redemption schedules.
Interval funds are designed for long-term investment horizons, often aligning with the illiquid nature of their underlying assets. Investors should be prepared to commit their capital for several years, understanding that liquidity is only available at specified intervals.
Interval funds come with limited liquidity, as redemptions are only available during predetermined intervals. They often have higher fees compared to traditional mutual funds, and the valuation of illiquid assets may not reflect real-time market conditions, potentially obscuring true fund performance.
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