An interval fund is a type of investment company that periodically offers to repurchase its shares from shareholders. That is, the fund periodically offers to buy back a stated portion of its shares from shareholders. Shareholders are not required to accept these offers and sell their shares back to the fund.|
Legally, interval funds are classified as closed-end funds, but they are very different from traditional closed-end funds in that:
Their shares typically do not trade on the secondary market. Instead, their shares are subject to periodic repurchase offers by the fund at a price based on net asset value.
They are permitted to (and many interval funds do) continuously offer their shares at a priced based on the fundís net asset value. An interval fund will make periodic repurchase offers to its shareholders, generally every three, six, or twelve months, as disclosed in the fundís prospectus and annual report. The interval fund will also periodically notify its shareholders of the upcoming repurchase dates. When the fund makes a repurchase offer to its shareholders, it will specify a date by which shareholders must accept the repurchase offer. The actual repurchase will occur at a later, specified date.
The price that shareholders will receive on a repurchase will be based on the per share NAV determined as of a specified (and disclosed) date. This date will occur sometime after the close of business on the date that shareholders must submit their acceptances of the repurchase offer (but not more than 14 days after the acceptance date).
Note that interval funds are permitted to deduct a redemption fee from the repurchase proceeds, not to exceed 2% of the proceeds. The fee is paid to the fund, and must be reasonably intended to compensate the fund for expenses directly related to the repurchase. They may charge other fees as well.
An interval fundís prospectus and annual report will disclose the various details of the repurchase offer. Before investing in an interval fund, you should carefully read all of the fundís available information, including its prospectus and most recent shareholder report.
Interval funds are regulated primarily under the Investment Company Act of 1940 and the rules adopted under that Act, in particular Rule 23c-3. Interval funds are also subject to the Securities Act of 1933 and the Securities Exchange Act of 1934.
Much of the above information is courtesy of the SEC.