An interval fund is a registered closed-end fund that commits to repurchasing a stated percentage of its shares — between 5% and 25% — at net asset value at regular intervals, typically quarterly. The structure lets a fund hold illiquid assets like private credit and real estate while offering investors scheduled, limited liquidity.
How interval funds work
Interval funds are '40 Act funds built on a closed-end fund chassis and governed by SEC Rule 23c-3, which defines the structure’s signature feature: a fundamental policy — changeable only by shareholder vote — committing the fund to periodic repurchase offers. Each offer must be for 5–25% of outstanding shares (most funds choose 5% quarterly), priced at NAV, with a required notification to shareholders in advance of each repurchase deadline.
Shares are typically sold continuously at NAV, often across a multi-class structure with different fee loads by channel, and most interval funds don’t list on an exchange — the repurchase program is the liquidity. Because redemptions are capped and scheduled, portfolio managers can hold assets daily-liquid funds can’t: direct loans, real estate, infrastructure, secondaries, structured credit. That’s the entire design logic — matching a semi-liquid liability structure to semi-liquid assets — and it’s why interval funds have become one of the fastest-growing wrappers for bringing institutional strategies to advisor channels.
The mechanics advisors should internalize
The repurchase offer is a commitment; full liquidity is not. If shareholders tender more than the offer amount, the fund repurchases pro rata (with modest discretion to expand the offer), and investors get back only part of what they tendered — the interval-fund version of a gate. In stressed periods or after strong asset gathering reverses, proration can persist across quarters, meaning a full exit can take a year or more. Positioning the product as “quarterly liquidity” without the proration caveat is how client relationships get damaged.
NAV is appraisal-based for many holdings. Funds holding private assets rely on fair-value procedures rather than market quotes, so the NAV investors transact at reflects valuation judgment — smoother than public marks, and worth understanding rather than either trusting blindly or dismissing.
Compare within the family. The closest sibling is the tender offer fund, which conducts repurchases at the board’s discretion rather than under a fundamental policy — a meaningful difference in commitment. Both differ from non-traded REITs and non-traded BDCs, which run share-repurchase programs outside the ’40 Act’s interval rule. Distinctions that matter for suitability: 1099 tax reporting (no K-1), daily or periodic purchase at NAV, 1940 Act leverage limits and board governance, and generally no accredited-investor requirement — interval funds are among the few genuinely retail-accessible alternative wrappers, which is precisely why fee loads, distribution sourcing, and liquidity expectations deserve scrutiny in every recommendation.
FAQ
What is an interval fund in simple terms?
A fund that invests in hard-to-sell assets and, in exchange, only lets investors redeem during scheduled windows — most commonly 5% of the fund per quarter, at NAV.
Are interval funds closed-end funds?
Yes — registered closed-end funds operating under Rule 23c-3. They differ from listed closed-end funds by selling shares continuously at NAV and providing liquidity through repurchases instead of exchange trading.
How do interval funds provide access to alternative investments?
By capping redemptions, the structure can hold illiquid assets — private credit, real estate, secondaries — that daily-redemption mutual funds can’t, inside a registered, 1099-reporting wrapper available to non-accredited investors.
What happens if everyone wants out of an interval fund at once?
Repurchases are prorated. Investors receive their proportional share of the offer amount and must re-tender in future windows — orderly by design, but slow when demand for exits is high.
Related terms
Tender Offer Fund · Closed-End Fund · '40 Act Fund · Non-Traded REIT · Gate Provision · Share Class
Educational content only; not investment, tax, or legal advice. Consult qualified professionals regarding your specific circumstances.
