What is an interval fund?
An interval fund is one of the types of investment funds in the U.S., along with mutual funds, closed-end funds and exchange traded funds or "ETFs", as explained in our educational article investment fund types.
Interval funds are governed by the Investment Company Act of 1940, a law that shapes how all registered investment companies must be structured and operated. All interval funds must meet certain operating standards, observe strict antifraud rules, meet diversification requirements, and disclose complete information to investors. The Securities and Exchange Commission (SEC) oversees regulations under the ’40 Act. Like all registered investment companies, interval funds must have a board of directors elected by the fund’s shareholders to oversee the management of the fund’s business affairs and to protect the fund’s interests, taking into account the interests of all shareholders.
Interval funds are technically a special type of closed-end fund. But interval funds have a mix of attributes, some that are similar to a mutual fund and some that are similar to a closed-end fund. Shares of an interval fund do not trade on a stock exchange, unlike true closed-end funds. Instead, you buy and sell shares of an interval fund by directly interacting with the fund company, like a mutual fund. Some online brokers will help you buy and sell interval funds on your behalf, but some don't. Similar to a mutual fund, shares of an interval fund are bought and sold at a price equal to the fund's daily net asset value per share ("NAV").
The key to an interval fund is that you can buy shares in an interval fund at any time, but unlike a mutual fund, you cannot sell your shares at any time. Instead, you can only sell your shares in an interval fund back to the fund under the fund's periodic repurchase program, usually quarterly. An interval fund will announce that they are willing to repurchase 5% of their outstanding shares. Investors then have to tell the fund how many shares they are willing to sell back to the fund. If investors collectively want to sell more than 5% of their shares, then the fund will repurchase from each investor a pro-rata portion of the investor's shares, so that the fund does not have to repurchase more than 5% of the outstanding shares.