Floater Funds

Floater mutual funds primarily invest in debt instruments with variable interest rates, such as floating rate bonds issued by Indian corporates, financial institutions, and the government. These securities typically have interest rates that reset periodically based on changes in benchmark rates like the Reserve Bank of India's (RBI) policy rates or other market reference rates.

The variable interest rates on the securities held by floater mutual funds adjust in response to changes in market interest rates. When interest rates rise, the interest payments on the securities also increase, providing investors with protection against interest rate risk. This feature makes floater mutual funds attractive to investors concerned about rising interest rates.

Unlike fixed-rate bonds, which experience price declines when interest rates rise, the prices of floating rate securities are less sensitive to changes in interest rates. This characteristic helps mitigate interest rate risk for investors in floater mutual funds.

Floater mutual funds primarily generate income through interest payments from the floating rate securities in their portfolios. Since the interest rates on these securities adjust with changes in market rates, the income generated by floater mutual funds can be relatively stable, even in a rising interest rate environment.

While floater mutual funds focus on variable-rate securities, they still consider credit quality when selecting investments. Fund managers typically invest in floating rate securities issued by high-quality issuers to mitigate credit risk.

Floater mutual funds aim to diversify their portfolios across different issuers and industries to spread risk. Diversification helps reduce the impact of defaults on the portfolio and enhances overall risk management.
 

While floater mutual funds provide protection against rising interest rates and offer stability in income generation, they generally offer lower returns compared to higher-risk fixed-income investments. Investors seeking higher returns may need to consider alternative investment options.

Since floater mutual funds primarily invest in debt instruments with variable interest rates, they may have limited upside potential during periods of declining interest rates. While they offer protection against rising rates, they may not benefit as much from falling rates compared to fixed-rate bonds.

Although floater mutual funds focus on higher-quality floating rate securities, they still carry credit risk. Investments in corporate bonds or other debt instruments are subject to the risk of issuer default or credit deterioration. Investors should carefully assess the credit quality of the securities held by the fund.

Timing can be crucial when investing in floater mutual funds. If interest rates remain low or decrease after an investment is made, the fund's performance may be negatively impacted. Investors should consider the prevailing interest rate environment and economic outlook before investing.

Download the INDmoney app and create your free investment account by completing your KYC ( Know Your Customer).

Once your Free investment account is ready, you can either search for a Floater Mutual Fund or go to the mutual fund section and tap on Floater mutual funds.

Choose a Floater Mutual Fund by looking at aspects like past returns, volatility, downside capture ratio, AUM, Expense ratios and underlying stocks and sectors.

You can choose to set up SIP in Floater mutual funds or even invest as lumpSum. Once you are on the individual Floater mutual fund page click from the bottom “One-time” for lump sum investment or “SIP” for systematic investment plan. 

Choose the amount that you want to invest as SIP or LumpSum.

Set up payments. If you choose to set up SIP in Floater mutual funds,  you can do a free automatic pay set up via bank mandate or UPI. If you choose to invest in lumpsum (one-time) then you can pay via UPI, netbanking, NEFT or RTGS.