Interval mutual fund scheme

An interval mutual fund scheme is a category of mutual fund scheme under the SEBI (Mutual Funds) Regulations, 1996 that combines features of the open-ended form and the close-ended form by restricting subscription and redemption to defined transaction windows, known as Specified Transaction Periods (STPs), while otherwise running as a continuous scheme. The structure was codified by a SEBI circular of 11 June 2008, which prescribed the minimum length of each STP, the minimum gap between successive STPs, and the mandatory listing of units on a recognised stock exchange.

Interval schemes occupy a small share of the Indian mutual fund industry. As of the financial year ended March 2025, the combined assets under management of close-ended and interval schemes were well under 5 per cent of total industry AUM of approximately Rs 65 lakh crore; within that figure, the interval segment alone has remained well below 1 per cent for several years. The share has compressed further since 1 April 2023, when the Finance Act, 2023, withdrew indexation and the long-term capital gains tax bracket on debt mutual fund units acquired thereafter, removing the central economic justification for the interval debt scheme.

The interval form is distinct from both parent categories. It is not open-ended, because subscription and redemption are not continuous; it is not close-ended, because the scheme does not run to a fixed maturity and offers periodic in-scheme exit at NAV during each STP. The 2017 Scheme Categorisation Circular treats interval schemes as a separate category alongside Fixed Maturity Plans.

Definition and regulatory framing

Regulation 2(s) of the SEBI (Mutual Funds) Regulations, 1996, defines an open-ended scheme as one that offers units for sale without specifying any duration for redemption. The interval form sits outside that definition: it is treated as a close-ended variant under Regulation 2(d), modified by the SEBI circular of 11 June 2008 (SEBI/IMD/CIR No. 10/126707/08) that introduced the present operational template. The 2008 circular codified the modern interval scheme as a defined sub-category with three binding requirements.

The first requirement is the Specified Transaction Period itself. Each STP must remain open for a minimum of two working days. The Scheme Information Document must state the date or date-range on which each STP opens, and the AMC must publish a forthcoming STP calendar. Applications received within the STP are processed at the cut-off NAV under the SEBI cut-off-time framework; applications received outside the STP are rejected.

The second requirement is the inter-STP gap. The minimum period between two successive Specified Transaction Periods is 15 days. The 2008 circular prescribed this floor to prevent AMCs from clustering STPs in a way that would replicate the continuous-subscription model of an open-ended scheme while retaining the close-ended classification. Common cadences include quarterly, half-yearly, and annual STPs.

The third requirement is mandatory listing on at least one recognised stock exchange. Listing under Regulation 32, ordinarily completed within five working days of allotment, provides a between-STP exit route for unit-holders who cannot wait for the next STP, anchoring interval-scheme regulation to the broader securities market apparatus under the SEBI Act, 1992 and the supervisory framework of the SEBI Investment Management Department.

Operational mechanics

The interval scheme begins with a New Fund Offer open for a maximum of 15 days, with allotment within five working days. The minimum scheme size of Rs 20 crore for debt and Rs 10 crore for equity under Regulation 35 applies; if minimum subscription is not met, the NFO is wound up under Regulation 39 and monies refunded within five working days, failing which the AMC pays interest at 15 per cent per annum.

After allotment, the scheme runs in a sequence of operating cycles. Each cycle begins with the close of an STP, runs through the inter-STP period during which the portfolio is managed without inflows or outflows, and ends at the opening of the next STP. During the STP, the AMC accepts subscription and redemption at the applicable cut-off NAV; proceeds are despatched within the timelines fixed by Regulation 53, namely 10 working days for general redemption and three working days for liquid-style schemes. Daily NAV is computed and published throughout the residual scheme tenure under the AMFI NAV file, regardless of whether the day falls within an STP, although the regulatory floor for close-ended schemes remains weekly publication.

Between Specified Transaction Periods, the only exit route is sale on the recognised stock exchange where units are listed. Most interval schemes list on BSE Limited, the National Stock Exchange of India Limited, or both. As with close-ended schemes, listed interval units typically trade at a discount to NAV, narrowing as the next STP approaches and widening immediately after one closes. Secondary-market liquidity is poor, with many trading days recording zero volume; the legal exit route does not always translate into commercially viable exit at fair value.

Cut-off times for STP transactions follow the standard framework. Subscription applications below Rs 2 lakh received before the prescribed cut-off on an STP working day are processed at that day’s closing NAV; applications received after the cut-off, or on a non-business day, are processed at the next business day’s closing NAV provided it falls within the STP. Applications of Rs 2 lakh and above, and applications in liquid-style interval schemes, follow the realisation-of-funds principle. Redemption is processed at the cut-off NAV of the STP working day on which the application is received.

Comparison with open-ended and close-ended schemes

The interval form differs from the open-ended form in the cadence of transactions and from the close-ended form in the existence of in-scheme exit before maturity. It is best understood as a hybrid: a close-ended scheme with periodic open-ended-style windows.

Cut-off times, NAV publication, and Total Expense Ratio under Regulation 52 follow the same statutory framework as the parent categories, addressed in the Total Expense Ratio framework. The interval form is unusual in that the scheme is technically classified as close-ended for regulatory purposes, including mandatory listing and absence of continuous subscription, but operationally behaves as open-ended on STP days.

Categories of interval schemes

The interval form has been used predominantly for debt strategies, with a small number of hybrid variants and a residual category of equity interval schemes that has remained marginal.

Debt interval schemes

The debt interval scheme is the dominant variant. The portfolio holds debt instruments with residual maturity aligned to the next STP, in a manner similar to the buy-and-hold strategy of a Fixed Maturity Plan. A quarterly interval scheme typically holds 91-day treasury bills and short-tenor commercial paper; an annual interval scheme holds one-year corporate bonds and certificates of deposit. Maturities are staggered so that liquidity is available at each STP without forced sale of long-dated paper.

Interval income schemes

The interval income scheme is a narrower sub-category in which the portfolio is structured to generate a relatively predictable income stream over each operating cycle, distributed in part through the Income Distribution-cum-Capital Withdrawal option. The category has been used at quarterly or annual cadence, in competition with bank recurring deposits and the open-ended liquid-fund category.

Hybrid interval schemes

Hybrid interval schemes combine a debt-oriented portfolio with a smaller equity overlay, typically below 35 per cent of net assets. The hybrid form has been comparatively rare and largely subsumed into the close-ended Capital Protection Oriented Scheme framework since 2008.

Equity interval schemes

Equity interval schemes are rare. The 2017 Scheme Categorisation Circular curtailed launches of close-ended equity schemes in general, and equity strategies are ill-suited to STP-only liquidity because portfolio volatility is materially higher than the typical inter-STP gap. The handful of equity interval schemes recorded by AMFI during 2010 to 2017 have largely run off.

Taxation

Debt-oriented interval schemes

The Finance Act, 2023, with effect from 1 April 2023, amended Section 50AA of the Income-tax Act, 1961, so that gains on transfer of units of a specified mutual fund acquired on or after that date are treated as short-term capital gains regardless of holding period, taxed at the unit-holder’s slab rate. The long-term capital gains category and the associated indexation benefit, which had historically applied to debt mutual fund units held for more than 36 months under Section 112, were withdrawn for fresh acquisitions. A unit-holder who acquired interval scheme units before 1 April 2023 continues under the pre-amendment regime, with indexation available on long-term gains. The change is treated in detail in debt mutual fund taxation 2023 and debt MF indexation removal in FY24.

Hybrid interval schemes

A hybrid interval scheme is treated as equity-oriented for tax purposes if domestic equity holdings constitute at least 65 per cent of net assets. In that case, units are taxed under the standard equity-oriented framework: short-term capital gains at the rate applicable under Section 111A and long-term capital gains under Section 112A with the Rs 1.25 lakh annual exemption. A hybrid interval scheme whose equity proportion falls below 65 per cent is treated as a debt fund and falls within the Section 50AA regime described above.

Securities Transaction Tax and Section 50AA context

Securities Transaction Tax applies to redemption of equity-oriented interval scheme units, in the same manner as for any equity-oriented mutual fund; STT is not levied on debt-oriented interval schemes. Stamp duty under the Indian Stamp Act, as amended in 2020, applies to issue of mutual fund units at 0.005 per cent of value irrespective of scheme category.

Section 50AA was inserted by the Finance Act, 2023, to address what the Ministry of Finance described as a tax-arbitrage benefit available to debt mutual fund units. The amendment defines a specified mutual fund as one in which not more than 35 per cent of total proceeds are invested in domestic equity shares; the threshold was revised by the Finance (No. 2) Act, 2024. For interval debt schemes, the 2023 amendment was operationally decisive in removing the long-term-gains tax preference that had historically distinguished them from bank fixed deposits.

Use cases and investor profile

The interval form has served three distinct purposes historically. Corporate treasuries used quarterly and annual interval debt schemes as parking vehicles for cash earmarked for known outflows at predictable dates; subscription was timed to coincide with surplus generation and redemption to coincide with the next planned payment cycle. The in-scheme redemption price at NAV avoided the exchange-discount cost associated with secondary-market exit from a Fixed Maturity Plan.

Laddered debt strategies used interval schemes as building blocks. By staggering allocations across schemes with monthly, quarterly, semi-annual, and annual STPs, an investor could construct a portfolio whose liquidity was effectively continuous in aggregate while preserving the close-ended tax classification on each component scheme. The strategy was widely deployed by family offices and corporate treasuries between 2010 and 2017.

For retail portfolios, the tactical role of the interval scheme has been limited. The structure requires investors to track the STP calendar and place applications within a window of as little as two working days, which compares unfavourably with the daily liquidity of open-ended liquid and ultra-short-duration funds. The Association of Mutual Funds in India has consistently treated the category as institutional rather than retail in its segmentation of industry data.

Historical evolution in India

The interval form existed informally during the late 1990s and early 2000s, with a handful of schemes structured to permit subscription and redemption at fortnightly or monthly cadence. The SEBI circular of 11 June 2008 standardised the structure, prescribing the two-working-day minimum STP, the 15-day minimum inter-STP gap, and mandatory exchange listing. The 2008 framework is the reference point for all subsequent launches.

The 2013 to 2017 period was the peak of interval debt scheme activity. A benign short-term yield environment, the long-term-gains tax bracket with indexation on units held more than 36 months, and the operational flexibility of monthly, quarterly, and annual STP cadences supported a wave of launches. Industry commentary of the period identified the interval scheme as a TDS-arbitrage vehicle, because dividend distribution under the then-applicable framework was subject to dividend distribution tax at the AMC level rather than TDS at the unit-holder level, in contrast with bank deposit interest. By 2017, the mutual fund industry had registered close-ended and interval AUM at approximately 15 to 18 per cent of total industry AUM combined.

The SEBI Scheme Categorisation Circular of October 2017 imposed the first material brake. It reorganised mutual fund categories and limited overlap between the Fixed Maturity Plan and the interval scheme, requiring each AMC to clearly distinguish the two product forms in scheme documentation. The broader thrust toward open-ended product forms reduced AMC appetite for new interval launches.

The Finance Act, 2023, completed the structural displacement. By withdrawing indexation benefit and the long-term capital gains tax bracket on debt mutual fund units acquired on or after 1 April 2023, the legislation removed the principal economic justification for the interval debt scheme. NFO activity fell sharply during financial year 2024 and remained subdued through financial year 2025. AMFI monthly data shows the interval share of industry AUM at well under 1 per cent throughout this period.

Notable AMC examples

A number of large Indian AMCs have at various points operated interval schemes. ICICI Prudential Mutual Fund ran a series of interval debt schemes at quarterly and annual cadence during 2010 to 2017. UTI Mutual Fund operated comparable interval debt offerings, particularly during the 2012 to 2016 period when interval debt was a standard component of large-AMC product menus. Reliance Mutual Fund, before its rebranding as Nippon India Mutual Fund in 2019, was an active sponsor of interval debt schemes during the 2010 to 2015 cycle. HDFC Mutual Fund, Birla Sun Life Mutual Fund (later Aditya Birla Sun Life Mutual Fund), and DSP Mutual Fund operated interval schemes in smaller numbers.

Specific scheme-level NAV, AUM, and return figures are not reproduced here; historical data is recorded in AMFI monthly reports and in individual AMC disclosures.

Criticism and limitations

The principal critique of the interval form is the poor liquidity between Specified Transaction Periods. The 15-day minimum inter-STP gap, and the much longer gaps used in practice for quarterly and annual schemes, leave investors without an in-scheme exit route for material periods. Mandatory listing under Regulation 32 provides a legal between-STP exit, but trading volumes in listed interval scheme units are typically minimal, with many sessions registering zero trades.

The persistent discount to NAV on listed trades imposes a structural cost on in-life exit. Broker studies during 2010 to 2018 recorded average discounts of 3 to 7 per cent on listed interval schemes, widening for less liquid schemes and immediately after an STP closes. The discount narrows as the next STP approaches and disappears once subscription and redemption open at NAV. A holder who exits between STPs forfeits a material portion of the in-scheme yield.

Investor confusion between interval schemes, Fixed Maturity Plans, and open-ended liquid funds has been a recurrent supervisory concern. The three product forms share overlapping use cases (short-term debt parking) and similar underlying portfolios (treasury bills, certificates of deposit, commercial paper), but differ materially in liquidity architecture and tax treatment. The mutual fund risk-o-meter addresses portfolio risk but does not capture the liquidity-window risk distinctive to the interval form.

Declining relevance is the operative limitation. With the post-2023 loss of the tax-arbitrage advantage, the interval debt scheme offers no material advantage over an open-ended ultra-short-duration or low-duration scheme, both of which provide daily liquidity at NAV without the STP-calendar burden. New launches have been minimal since 2023, and AMFI monthly data shows the category running off through natural maturities and STP redemptions without compensating fresh subscriptions.

See also

• Open-ended mutual fund
• Close-ended mutual fund
• SEBI (Mutual Funds) Regulations, 1996
• SEBI Scheme Rationalisation Circular 2017
• SEBI Act, 1992
• SEBI Investment Management Department
• Mutual fund industry in India
• Mutual fund NAV
• Mutual fund cut-off times
• Debt mutual fund taxation 2023
• Debt MF indexation removal in FY24
• ICICI Prudential Mutual Fund
• UTI Mutual Fund
• Total Expense Ratio in Indian mutual funds
• Mutual fund risk-o-meter in India
• AMFI, Association of Mutual Funds in India

References

1. SEBI (Mutual Funds) Regulations, 1996, Gazette of India Extraordinary, Part II, Section 3, 9 December 1996, as amended.
2. SEBI Circular on Interval Schemes, SEBI/IMD/CIR No. 10/126707/08, 11 June 2008.
3. SEBI Categorisation and Rationalisation of Mutual Fund Schemes, Circular SEBI/HO/IMD/DF3/CIR/P/2017/114, 6 October 2017.
4. SEBI Master Circular for Mutual Funds, SEBI/HO/IMD/IMD-PoD-1/P/CIR/2023/74, 19 May 2023, with amendments through 27 June 2024.
5. Finance Act, 2023 (Act No. 8 of 2023), insertion of Section 50AA into the Income-tax Act, 1961.
6. Finance (No. 2) Act, 2024 (Act No. 15 of 2024), amendments to Section 50AA and to Sections 111A and 112A of the Income-tax Act, 1961.
7. SEBI Annual Report 2023 to 24, Mumbai, August 2024.
8. AMFI Monthly Industry Data, March 2025.
9. SEBI Cut-off Time Framework for Mutual Fund Transactions, SEBI/IMD/CIR No. 11/186868/2009, with subsequent amendments.
10. Indian Stamp Act, 1899, as amended by the Finance Act, 2019, with effect from 1 July 2020.