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On September 1, 2017, ICICI Prudential AMC announced the winding up of all its interval funds with assets under management (AUM) of below ₹20 crore. Of the 14 interval funds under the ICICI Pru AMC, there are nine funds with AUM of below ₹20 crore.
This move to wind up the schemes is in line with the mandate of the Securities and Exchange Board of India (SEBI), that all debt-oriented schemes have to maintain minimum assets under management of ₹20 crore at all times.
The other AMCs running interval funds are Aditya Birla Sun Life, Invesco India, Reliance, SBI and UTI. Out of the 53 interval funds managed by the MF industry currently, there are 31 funds with assets less than ₹20 crore.
Interval funds are somewhat similar to close-ended funds. Like close-ended funds, interval funds come with a defined tenure and do not permit purchase and redemption during the tenure. But they allow purchase and redemption during a particular period called ‘Specified Transaction Period’, which falls immediately at the end of the tenure.
Specified Transaction Period shall be for a minimum of two business days, when AMCs allow subscription/switch in and redemption/switch out of units into/from the schemes without any load. The tenure of the interval funds may be monthly, quarterly or annual.
AMCs fix the Specified Transaction Period immediately after the tenure is completed. Investors have the option to liquidate during this period.
Fresh subscription is accepted during this period and these funds are allowed to roll-over with the same tenure.
Interval funds drew many investors till the tax tweak in the 2014 Budget, which increased the tenure to claim long-term capital gain tax benefit for debt funds from one year to three years.
Earlier, similar to Fixed Maturity Plans (FMPs), investors were enjoying the benefit of lower or NIL taxes on these investments due to the availability of double indexation benefit in the calculation of capital gains tax. Post the tax tweak, interval funds, along with FMPs, have lost out.
They have also found it difficult to shop for good rates among debt instruments with longer tenure.
Data compiled from AMFI India shows that the AUM of interval funds as on July 31, 2017 stood at ₹3,810 crore. This is just about one-third of its size of ₹10,361 crore as on July 31, 2013.
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