Interval Funds: What Investors Need to Know

The main potential benefit of the interval fund structure is that, unlike a traditional open-end mutual fund or ETF, an interval fund can invest more in illiquid assets. Traditional mutual funds or ETFs can't put more than 15% of their assets into illiquid investments like private real estate, private equity, private credit, etc., but that limit doesn't apply to interval funds. This means that potentially higher-return investments (with potentially higher risk) are accessible to ordinary investors via interval funds.

If there is an "illiquidity premium" to be gained (that is, a higher level of return for an investment to compensate for the fact that it is hard to get out of), interval funds could gain that premium. Illiquid investments have the potential to perform well in a way that is not highly correlated with the stock market, which could make interval funds a way to help diversify an equity-heavy portfolio.

While illiquid assets might have attractive risk or return features, they tend to be more complex than stocks and bonds that investors can invest in via mutual funds or ETFs. Instead of having prices set throughout the market day like a stock or a bond might, illiquid assets are difficult to value. Because of their illiquidity, they are also inherently difficult to turn into cash if the interval fund manager wishes to sell them.

Despite these tradeoffs, some investors find the prospect of investing in private markets to be attractive, and interval funds provide access to these markets to a wide range of investors.

The main tradeoff to consider with an interval fund is right in the name: the "interval." Unlike traditional mutual funds or ETFs that allow investors to redeem or sell on any business day, interval funds do not provide daily redemptions. Instead, the interval fund will make a certain amount of its assets (typically between 5% and 25%, though 5% is more common) available for you to redeem on a certain regular schedule (often once per quarter, but monthly, semi-annual or annual schedules are also possible). The period between these redemption windows is the "interval" in the name of the fund structure.

It's important to note that the fund will only accept requests for redemptions during a particular redemption window within the quarter (or the fund’s disclosed redemption interval), which may be a few weeks long, or it may be shorter. Depending on your financial institution where you hold the fund, you might have as little as one specific day each quarter to submit a redemption request. If you miss the redemption window, you'll have to wait for the next window before you can request to redeem any shares.

So, what does this mean for investors? Well, when you invest in a traditional mutual fund or ETF, you can decide on any given market day to redeem or sell your entire investment (or any portion of it) and do something else with the cash. If you invest in an interval fund, however, you will get an opportunity (usually once per quarter) to tell the fund you would like to redeem all or some portion of your investment.

Let's use an example of a hypothetical interval fund that opens its redemption window once per quarter and makes 5% of the fund assets available for redemption during the next redemption window. Assume the fund has $100 million in assets. This means that at the next redemption window, up to $5 million in total can be repurchased by the fund.

If you have $100,000 in the fund and you decide you want to take all your money out, you might get the entire amount if other investors do not submit redemption requests that exceed the fund's repurchase limit. But if investors have requested that the fund repurchase 25% of the assets in the fund ($25 million) in that same quarter but the fund has only made $5 million available for repurchase, the fund will be unable to meet all of the repurchase requests. This means you and other investors who requested that the fund repurchase shares will only get a fraction (a pro-rata portion) of what you requested; 20% in this example ($5 million out of the total requested $25 million). So, you wanted your entire $100,000 stake back, but you will only get $20,000, and you will be left to request another redemption the following repurchase window. And in the meantime, your remaining $80,000 in the interval fund continues to be exposed to changes in net asset value.

In summary, if not many investors want to take their money out, it's relatively easy to redeem your shares. But if circumstances lead many investors to request redemptions all at once, those investors will likely get much less out of the fund than they requested.

While the opportunity to redeem shares of an interval fund typically only comes once per quarter (although it could be more or less frequently, depending on the fund), interval funds are structured under the Investment Company Act of 1940 and shares of the fund generally can be purchased each business day. This means that interval funds will generally calculate their net asset value (NAV) per share every day, and when investors buy or redeem shares it will be at the relevant NAV.

Private and illiquid assets can be difficult to value. There's no moment-by-moment market for the shares of a private company the way there is for a company whose stock trades on a public exchange. Figuring out the value of a three-year loan made to a private company is more complicated than valuing a bond issued by a public company with three years until maturity. This poses a challenge for the manager of an interval fund, who must set a value for each asset in the fund each day.

Nevertheless, the reported NAV of the fund gives interval fund investors more information about the performance of the fund's underlying illiquid assets than investors who own private assets through truly illiquid vehicles such as private funds that only report information once per quarter.

In addition, unlike closed-end funds that trade on exchanges at prices that might be significantly higher or lower than the NAV of the fund, interval funds take in investor money and redeem shares at the calculated NAV, much like with a traditional open-end mutual fund.

Another tradeoff for interval funds is their high cost. Because they are actively managed and entail complexity in selecting, investing in, and managing underlying illiquid securities, interval funds tend to be more expensive than mutual funds and ETFs, including standard stock or bond funds and some "liquid alternative" funds. The largest portion of most funds' expenses is the management fee, which is what the investment adviser that oversees and manages the assets of the fund charges the fund to pay the adviser’s own expenses (salaries, office space, software, travel, etc.), expenses indirectly borne by fund investors.

For the Morningstar categories in which interval funds exist, the average management fee for interval funds is 1.30%, while the average mutual fund in those same categories has a management fee of just 0.59% — less than half as much, according to Morningstar Direct data as of September 15, 2026. And if you look at the relative costs of investing in an interval fund, according to funds' annual reports, the average interval fund charges 2.84% in costs and expenses, while the average mutual fund in the same categories only charges 0.99%, also according to Morningstar Direct data as of September 15, 2026. Those costs and expenses charged by the funds may cover legal, compliance, and independent auditing costs, and fees for transfer agency, fund distribution, and third-party valuations of a fund's underlying assets, among other fees and expenses.

Some interval funds also charge a repurchase fee when you redeem shares, which the SEC allows up to 2% of the proceeds. This fee is paid to the fund itself, not the manager, and is meant to cover the costs of processing the repurchase. Many interval funds don't charge one, but because a fund's board can add one, it's worth checking the prospectus before you invest.

Compared to investing in a truly illiquid, private fund, the costs of interval funds are reasonable, in our view, and most investors don't have access to those illiquid funds in the first place. But for investors who are used to low-cost mutual funds or ETFs, the costs of interval funds will look higher.

Given the limited liquidity and higher costs that interval funds typically carry compared to traditional mutual funds, are interval funds worth considering?

For some investors, the attraction of an interval fund may be the ability to get access to an "illiquid" strategy (such as investing in private companies or private debt) in a semi-liquid vehicle. The appeal of these illiquid strategies is the potential for either higher returns than investors can find in a liquid vehicle or for returns that provide diversification to the regular stock, bond, and cash investments that commonly make up investment portfolios. Interval funds provide most investors with access to these illiquid assets, and they provide a daily view of the value of the fund and the ability to trade at net asset value.

The tradeoffs to consider are the possibility of having an investment locked up for longer than you might want, and the higher costs than many of the active mutual funds (let alone index funds or ETFs, which are typically far less expensive still).

Whether an interval fund makes sense in your portfolio requires careful consideration of potential benefits and tradeoffs of the specific interval fund and how it fits within your broader portfolio. Be sure to consider all sides of the equation, for both interval funds and open-end mutual funds or ETFs, and before considering any fund, consult the fund’s prospectus to understand its investment objectives, risks, charges, and expenses. It is important to understand both the potential benefits and the tradeoffs before considering adding an interval fund to your portfolio.