Understanding interval
funds.
© 2023 SEI 1
Interval funds are closed-end mutual funds designed to give retail investors
access to illiquid assets that are typically restricted to institutional
investors. In exchange for this access, investors must agree to restrictions
on when and how much of their money they can withdraw at a given time.
Why interval funds?
Like traditional mutual funds, interval funds provide a convenient way for investors to access the benefits of a professionally
managed portfolio. The most distinct difference is that investors may only withdraw their assets from an interval fund at
certain prearranged periods or 'intervals' and for a predetermined number of shares each time.
Interval funds also provide access to generally illiquid asset classes such as real estate, private equity, and structured credit.
Traditional mutual funds cannot invest more than 15% of assets in illiquid investments
1
. Since interval funds are not limited to
this 15% cap, they provide an opportunity for the average investor to add a range of diversifying illiquid assets to a traditional
equity/bond portfolio.
What are the redemption intervals?
In general, an interval fund will free a portion of its shares (between 5% and 25%) for investors to withdraw funds on a
pre-defined schedule. The timing may be monthly, semi-annually, or quarterly.
Shareholders receive notification and details of upcoming redemption windows during which the fund manager will repurchase
shares that investors wish to redeem for cash. It is investors' prerogative to redeem shares of the fund and notify the manager
of their intent by the stated deadline. Note however that only a specific portion (e.g. 5% - 25%) of the fund is available for
redemption. If investors' orders surpass what the fund offers, shares are liquidated on a pro rata basis, which means that
shareholders may not be able to redeem their desired number of shares at a given time.
1
Per the Securities and Exchange Commissions rule 22e-4 related to the classification of funds' portfolio investments, "A fund
is not permitted to purchase additional illiquid investments if more than 15 percent of its net assets are illiquid investments
that are assets." https://www.sec.gov/divisions/investment/guidance/secg-liquidity#:~:text=to%20this%20requirement.-
,Limitation%20on%20Illiquid%20Investments,illiquid%20investments%20that%20are%20assets.
