Interval Fund Essentials: Selling Shares

Interval funds are well suited to long-term growth. However, sometimes investors will need to sell their shares – and that process can be confusing. Here’s what you need to know.

IMPORTANT REMINDERS

You may be familiar with the basics of interval funds, but here are a few key facts to remember:

· They’re offered continuously, which means investors can buy shares at any time of the year.

· They’re sold periodically, which means investors can only sell them at predetermined intervals (usually once a quarter).

· They’re priced at net asset value (NAV), which is the total amount of money invested in the fund divided by the number of shares the fund has issued.

· NAV is calculated daily, so the price you’re getting is current and accurate to within 24 hours.

HOW TO SELL INTERVAL FUND SHARES

Interval funds give investors the chance to sell their shares back to the investment company at intervals of three, six, or twelve months. A few weeks before this repurchase date, the fund will mail each of its shareholders an N-23C3A form. This contains information about the deadline for responding with a request to sell shares, as well as a summary of the fees and steps associated with the process. Here’s what to do:

1. Carefully read the N-23C3A, and take note of the deadline to respond with your request to sell shares.

2. Determine whether you acquired your shares through a financial advisor or other intermediary. If so, contact them with your request to redeem shares, and they’ll do so on your behalf.

3. If you purchased the shares yourself, fill out the Repurchase Offer Request form included with the N-23C3A. This will require your personal details, as well as the number of shares or dollar value of each share class you wish to sell.

4. Mail your Repurchase Offer Request to the fund.

5. The fund will notify you if your request can be fulfilled (see note below), and you’ll receive payment within a few weeks.

Note: Interval funds are only required to accept repurchase requests up to a certain threshold of shares – usually between 5% and 25%. This means that they will only buy back that proportion of total outstanding shares, which can leave some investors unable to sell back their shares until the next repurchase period. Because of this, funds may repurchase a portion of the shares that a given investor intends to sell, but not the whole amount. The order of preference for repurchasing is up to the fund, and it’s usually determined by the time the request was filed or the proportion of shares held by the investor.

Note: The fund will supply you with a “repurchase pricing date.” The NAV for this date will be the price at which each of your shares is sold back to the fund. Therefore, you won’t know the exact price you’ll be getting when you submit your redemption request.

FEES TO CONSIDER

Interval funds are authorized to charge a repurchase or redemption fee when investors sell back their shares, which can be up to 2% of the proceeds from the sale. However, it’s uncommon for funds to do so. Instead, managers often incentivize investors to hold their shares for a longer time by charging an early repurchase fee, which only applies if the shares are sold within a certain period after purchasing them. That period is usually a year, and the fee is capped at 2% of proceeds.

Any profits or losses from the sale of your shares will be taxed as capital gains or losses, with rates based on your income bracket and the amount of time you held the shares.

Next: Interval Fund Essentials: Fees