Interval Funds: Illiquid Portfolio Holdings and Periodic Repurchase Offers
A registered representative considers recommending a closed-end 'Interval Fund' investing in private credit and commercial real estate debt to a retail customer. How do interval funds provide liquidity to shareholders compared to standard exchange-traded closed-end funds?
Interval funds do not trade on secondary exchanges. They provide limited periodic liquidity by offering to repurchase 5% to 25% of outstanding shares at NAV at set intervals (quarterly).
Complete Analysis & Legal Rationale
Interval funds are classified under the Investment Company Act of 1940 as closed-end funds, but their shares DO NOT trade on secondary exchanges. Because they hold illiquid assets (private debt, real estate, micro-venture equity), they provide limited liquidity by making periodic repurchase offers to buy back between 5% and 25% of shares at Net Asset Value (NAV) on a quarterly, semi-annual, or annual basis under Rule 23c-3. They are unsuitable for investors requiring immediate daily liquidity.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Interval funds do not trade on secondary exchanges. They provide limited periodic liquidity by offering to repurchase 5% to 25% of outstanding shares at NAV at set intervals (quarterly).
Fails to adhere to packaged product rules for B.
Fails to adhere to packaged product rules for C.
Fails to adhere to packaged product rules for D.
Official Standard: Interval funds are classified under the Investment Company Act of 1940 as closed-end funds, but their shares DO NOT trade on secondary exchanges. Beca