Interval funds offer a unique opportunity for investors looking to diversify their portfolios with access to alternative assets and potential income.
Unlike traditional mutual funds, interval funds provide a blend of flexibility and exclusivity, making them an intriguing option for those seeking steady returns outside the usual investment options.
In this guide, we’ll explain what interval funds are, how they work and how you can invest in them.
An interval fund is a type of closed-end mutual fund that allows investors to buy shares, but with a unique twist: instead of being able to trade shares freely on the open market, investors can only sell their shares back to the fund during specific intervals, hence the name.
These intervals are typically quarterly but can vary depending on the fund’s structure. This setup provides a balance between the liquidity found in open-end mutual funds and the stability of traditional closed-end funds.
Interval funds often invest in less liquid and alternative assets that might not be accessible through investing in traditional mutual funds. These assets can include:
While interval funds share some similarities with mutual funds, they differ in several key ways:
Investing in interval funds typically comes with higher fees than traditional mutual funds.(2) The average minimum investment for an interval fund is also higher than that of a mutual fund and typically ranges from $2,500 to $25,000, depending on the specific fund and its target asset class.(3)
Fees commonly associated with interval funds can include:
When considering interval funds, it’s essential to know your options. These funds provide access to a range of asset classes, from private credit to real estate, and each comes with its own strategy and risk profile.
Below, we’ve highlighted some of the most popular interval funds, each offering unique opportunities for diversification and potential returns. Whether you’re interested in tech-driven ventures, real estate or corporate lending, there’s likely an interval fund that aligns with your investment goals.
The ARK Venture Fund focuses on investing in innovative companies that are pushing the boundaries of technology and science. Managed by ARK Invest, known for its high-conviction bets on disruptive innovation, this fund targets early-stage and private companies in sectors like artificial intelligence (AI), robotics and genomics.
Currently, the fund maintains roughly $65.5 million in net assets as of September 2024 and has a management fee of 2.75%.(4) The ARK Venture Fund holds a dynamic portfolio of private companies that are leaders in disruptive innovation.
Top holdings include SpaceX, pioneering space exploration, Epic Games, the creator of Unreal Engine and Fortnite, and Freenome, which uses AI for early-stage cancer detection, as well as Relation Therapeutics, Blockdaemon, Anthropic and Discord.
Available to accredited and non-accredited investors, investing in the ARK Venture Fund offers a way to participate in high-potential startups that aren’t available in public markets. The fund’s performance is tied closely to the success of its top holdings, making it a high-risk, high-reward investment option.
The Fundrise Real Estate Interval Fund offers investors access to a diversified portfolio of income-generating real estate assets, ranging from residential to commercial and industrial properties.
Managed by Fundrise, a leader in the online real estate space, this fund aims to provide consistent returns by directly managing a variety of high-quality properties across the United States.
The fund leverages its platform to manage properties directly, aiming to reduce costs and enhance returns for investors. The fund’s strategy focuses on acquiring and managing high-quality properties across the United States, and it currently maintains $1.1 billion in net assets. In terms of fees, overall expenses are capped at 2% annually, including a 0.85% management fee.
Fundrise’s real estate interval fund is open to all investors, with relatively low minimum investment requirements, making it an accessible option for those looking to invest in real estate.
The Cliffwater Corporate Lending Fund (CCLFX) stands out as the largest interval fund in the market, with a specialized focus on private credit, particularly in senior secured loans provided to middle-market companies.(5)
Cliffwater LLC is a renowned asset management firm known for its expertise in alternative investments. The fund is designed to offer investors consistent income through a highly diversified portfolio of loans that vary in both maturity and credit quality.
The fund’s strategy centers on generating a reliable income stream through interest payments, positioning it as an attractive option for investors seeking income-focused returns. The loans in the portfolio are senior secured, meaning they are backed by the assets of the borrowing companies, offering a layer of protection in case of default.
As the largest player on our list of interval funds, CCLFX maintains a staggering $17.9 billion in net asset value, charges 1.58% in fees and has a very steep $10 million minimum investment requirement.
Managed by The Carlyle Group, a global investment firm with extensive experience in private equity and credit markets and, recently, financing for the NFL, this fund invests in both performing and distressed debt, aiming to capitalize on market inefficiencies.(6)
With a diversified portfolio that includes senior loans, mezzanine debt and distressed credit, the Carlyle Tactical Private Credit Fund provides investors with access to a wide range of debt instruments that offer both income and capital appreciation potential — with a minimum investment requirement of only $2,000.
Bear in mind, however, that CTAC carries significant fees — with clients being charred a 1.28% management fee that, when added up to all the other associated fees, combines for a total annual fund expense of 6.66%.
Apart from the well-known names mentioned above, several other interval funds cater to different investor needs.
For example, the Stone Ridge Alternative Lending Risk Premium Fund focuses on consumer and small business loans, offering exposure to alternative lending markets.
Another option is the Griffin Institutional Access Real Estate Fund, which targets institutional-quality real estate assets, providing a blend of income and potential appreciation.
Finally, if fixed-income investments are more your speed, The Oaktree Diversified Income Fund offers exposure to high-yield bonds, leveraged loans and private credit targeting income generation.
Not all brokers offer access to interval funds, so the first step is finding one that does. Some of the more prominent platforms include SoFi Invest® and Titan. While Fidelity offers interval funds, access is typically limited to financial advisors. Given the complex nature of interval funds, these brokers provide the necessary tools and support to make the investment process straightforward.
Like other investment vehicles, interval funds come with tax implications that you should be aware of. The income generated from these funds, such as interest or dividends, is typically taxed as ordinary income.
Additionally, any capital gains realized upon redemption may also be subject to taxation. It’s advisable to consult with a tax advisor to fully understand the impact of investing in these funds on your tax situation.
One of the defining features of interval funds is their limited liquidity. Unlike mutual funds, where you can buy or sell shares daily, interval funds only allow redemptions during specific intervals, usually quarterly.(7)
During these redemption windows, the fund will repurchase a certain percentage of shares from investors who wish to sell. If the demand to sell exceeds the available redemption capacity, your redemption request may be partially fulfilled or carried over to the next interval.
Due to the illiquid nature of the underlying assets, investing in interval funds is generally a long-term commitment.(7) You should be prepared to hold your investment for several years, especially since early redemption might be limited or penalized. This makes interval funds more suitable for investors with a long-term horizon who are looking to diversify their portfolios with alternative assets.
Investing in interval funds comes with both benefits and drawbacks. Understanding these can help you determine whether these funds align with your investment strategy.
Interval funds offer a unique way to diversify your portfolio with access to alternative assets and the potential for higher returns. However, the trade-offs in liquidity and fees mean they may not be suitable for everyone.
If you’re an investor with a long-term outlook and an interest in non-traditional investments, interval funds could be a valuable addition to your portfolio. Explore the best brokerage accounts today — many of them provide access to interval funds.
Interval funds can be a good option for diversifying with alternative assets like private credit or real estate. However, their limited liquidity and higher fees mean they’re best suited for long-term investors comfortable with higher risks.
Mutual funds offer daily liquidity, while interval funds limit redemptions to specific intervals, usually quarterly. This limited redemption schedule requires a longer-term commitment from investors but allows interval funds to invest in less liquid, potentially higher-yielding assets.
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