DEFINITION of Interval Fund
An interval fund is a non-traditional type of closed-end mutual fund that periodically offers to buy back a percentage of outstanding shares from shareholders. Shareholders are not required to sell their shares back to the fund.
BREAKING DOWN Interval Fund
Periodic repurchase offers come at preset intervals of three, six or 12 months, as outlined in the fund’s prospectus and annual report. The repurchase price is based on the per share NAV on a date specified (and announced in advance) by the fund.
Fees for interval funds tend to be higher than for other types of mutual funds, as do returns. Interval funds are regulated primarily under Rule 23c-3 of the Investment Company Act of 1940 and are subject to the rules of the Securities Act of 1933 and the Securities Exchange Act of 1934.
Example of an Interval Fund
The Pimco Flexible Credit Income Fund, which aims to provide a flexible approach to credit investing, is one example of an interval fund. Like all interval funds, it does not trade publicly. There are three reasons the bond firm chose the interval fund model. First, it offers a larger universe of opportunities and allows the managers to invest in its highest-conviction credit ideas such as private debt transactions. Also, it gives investors a greater exposure to higher-yielding credit markets while avoiding the lower realized returns that can result from investor psychology, promoting longer-term investment periods. Investing in higher-yielding, less liquid assets presents a challenge in open-end mutual funds, which have daily liquidity. Finally, investors can sell their shares back to the firm at net asset value (NAV) instead of at a discount or premium, unlike other closed-end funds.