Interval Plan Debt Fund

The Interval Plan Debt Fund represents a type of mutual fund that primarily invests in fixed-income instruments. These include government securities, corporate bonds, money market instruments, and debentures. What differentiates it from ordinary debt funds is its format: it is only accessible for subscription and redemption within particular time intervals, that is, interval periods.

These periods usually repeat during the time mentioned in the fund's offer document. Investors can only carry out trades within these periods. This gives the fund manager more flexibility and stability in managing assets.

• Scheduled Time Intervals: You can only invest or redeem during the set times. This provides an element of structure and predictability to the investment.
• Profits Driven by Debt: The debt-oriented funds put money into income instruments to generate consistent returns with much less risk compared to the equity-oriented funds.
• Moderate Liquidity: In contrast to open-ended debt funds, liquidity in interval funds is not only limited but also available only during the interval windows. This implies that investors have to schedule their redemptions.
• The Securities and Exchange Board of India (SEBI) supervises interval funds. This ensures transparency, protects investors, and follows regulations.

Borrowing money from an Interval Plan Debt Fund occurs when the fund's manager invests the investor's provided funds in a portfolio of debt instruments. In the absence of daily redemption pressure (such as open-ended funds), fund managers can invest with a longer-term perspective, often choosing options that may yield higher returns in the future.

On the other hand, the investor can choose to withdraw or add more money, but this can only be done within the specified window, as the redemption period is limited. This characteristic thus ensures that there are no sudden outflows, which could, for example, lead to fund managers selling the assets at unfavorable prices.

Generally speaking, interval funds provide higher returns compared to traditional savings accounts and fixed deposits. They profit from longer-term success in primary debt instruments.

• Reduced Volatility: The restricted redemption structure reduces NAV jitter, making it less susceptible to market noise or temporary fluctuations.
• Disciplined Investing: Investors who are most likely to lose their temper during market volatility are less likely to react recklessly, as the fund's fixed interval structure encourages them to behave in an orderly manner.
• Diversified Exposure: Such funds invest in debt securities across multiple sectors, which diversifies the risk and, at the same time, helps improve the return potential.
• Professional Management: Investors benefit from the experience of various fund managers during the debt portfolio period, who also monitor market conditions to achieve better returns.

Interval Debt Funds are low-risk, but at the same time, they are not entirely risk-free. The following are some of the risks associated with them.

• Liquidity Risk: Investors are allowed to redeem only during the specified intervals. In an emergency case, access to funds may be limited.
• Interest Rate Risk: The fund's debt instruments will have a lower value if the interest rates increase, and therefore, the NAV may be affected.
• Credit Risk: It is always possible that debt instrument issuers may be dishonest; however, funds mainly focus on investing in top-rated securities.

• People who have short- to medium-term investment goals (6 months to 3 years)
• Those who like low-risk investing more than market volatility.
• Individuals who are in the hunt for the best returns on surplus funds, such as savings accounts or fixed deposits.
• People who are comfortable with liquidity periodically, rather than having daily access to their money.

By the present tax system in India:

• Short-Term Capital Gains (STCG): If the asset was held for less than 36 months, the gains will be taxed according to the investor's income tax slab.
• Long-Term Capital Gains (LTCG): If the asset was held for over 36 months, the gains will be taxed at 20% with the use of indexation benefits.

Ask a tax expert for the latest information.

• Higher income than liquid funds.
• The best for parking funds with a known deadline for use.
• Appropriate for corporate treasuries and HNIs (High Net Worth Individuals).