Be Careful With Interval Funds

YOU may have been hearing more often about interval funds.

- JEFFREY R. KOSNETT

About 100 are operating or in registration.

These are actively managed and leveraged credit, bond or mortgage funds with a high-income mandate. As with exchange-traded and mutual funds, interval funds continuously issue shares and price daily at net asset value, unlike closed-end funds with their capricious discounts and premiums. The usual objection—limited liquidity—should not be a deal breaker unless you invest with the intention of bailing at the first hint of trouble.

The acid test is whether an interval fund delivers long-term yieldand-return advantages—and on that, the evidence is inconclusive. Hence, I advise enrolling only if the fund dispenses life-changing additional income: at least 10% taxable, or 7% from a tax-exempt fund. That said, there are simpler ways to prospect for such payouts, including business development companies.