A credit fund can receive interest every month while holding loans that take years to repay. Its investors may want their money sooner. That creates two separate questions: how quickly can the fund turn its assets into cash, and how can an investor leave?

ASIC’s Moneysmart guide to private credit explains that loans can be difficult to sell and withdrawals may be delayed. A regular income payment does not establish that the original investment is available on demand.

Selling on an exchange

For an Australian listed investment trust, investors usually sell units to another investor on the exchange. The trust does not have to sell a loan to fund that transaction. However, there must be a buyer, and the market price can be below the reported value of the underlying assets. Moneysmart’s explanation of listed trusts sets out these price and liquidity risks.

US publicly traded business development companies, or BDCs, also trade at market prices, as the SEC explains. This exchange route should not be assumed for a BDC whose shares are not listed.

Requesting a withdrawal

In an Australian unlisted fund that offers withdrawals, access depends on the fund’s terms. The relevant details include notice periods, processing dates, fees and circumstances in which withdrawals can be limited or suspended. “Monthly withdrawals” therefore needs more explanation than a date on a calendar.

Moneysmart’s managed-fund guide explains that access can be restricted, delayed or stopped. The product disclosure statement, or other applicable offer document, is where the detailed terms belong. Open-ended does not mean cash is always available immediately.

A US interval fund example

A US interval fund offers periodic repurchases of a limited portion of its shares. If requests exceed the offer, investors generally receive a proportionate allocation. The SEC’s interval-fund bulletin also explains that the pricing date comes after the deadline for accepting an offer.

In a simplified hypothetical example, a fund offers to repurchase 5% of its outstanding shares and receives requests covering 10%. With proportional allocation and no exceptions, an investor asking to sell 1,000 shares would have 500 repurchased. The remainder stays invested. Actual terms govern each offer.

Access and value are different

Cash buffers can help meet withdrawals, but they cannot make a borrower repay a bad loan. Net asset value, or NAV, measures assets less liabilities; it is not a promise to return the original amount invested. Private-loan valuations also involve judgement. Understanding an exit therefore means understanding its timing, its limits and how its price is calculated.

Educational information only. It does not take account of your objectives, financial situation or needs.