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A floating rate fund invests in financial securities that pay a floating or variable rate of interest. A floating rate fund that may be a Mutual Fund or an exchange-traded fund (ETF) invests in Bonds and financial instruments whose interest payments fluctuate with the level of the Underlying interest rate.
As a result, a fixed-rate investment will typically provide a steady and predictable Income. On the other hand, fixed-rate investments lag behind the Market as interest rates rise since their returns are fixed.
As per Security and Exchange Board of India (SBEI) norms, Floater Fund should invest a minimum of 65 percent of its total assets in the floating rate instrument.
In an environment of rising rates, the floating rate funds strive to provide investors with a variable interest income. As a result, as investors seek to increase the yield on their portfolios, floating-rate funds have grown in favour.
The floating rate instrument is considered to be an attractive instrument for investors with a conservative portion. This fund invests a major portion of its corpus in floating rate instruments and rest in Fixed Income securities. They are least risky in terms of interest rate. Unlike other debt funds, floating rate funds do not react to the changing interest rates. When the Government of India issues bond in the market, they have a fixed coupon rate, whereas, floating rate securities have variable interest rates. These floating rate interest increases or decreases based on the Reference Rate. To benefit the most, one should invest in these funds when interest rates are expected to rise.
But, being a Debt fund, the credit risk in the fund still remains. Credit risk arises when a company that has issued the debt instruments does not make regular payments. In such cases, it has a major impact on the fund, depending on how much portion the fund has in the Portfolio. Hence, it is suggested to be in debt instruments with a rating higher credit rating.
There are two kinds of floating rate funds— short-term and long-term. The portfolio of short-term floating funds is normally skewed towards short-term maturities and the portfolio of the long-term plan is skewed towards longer-term maturities.
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Even though there is no formula for calculating a floating rate fund, it can be made up of various investments. Corporate bonds, preferred stocks, and loans with maturities ranging from one month to five years are examples of floating-rate funds. Corporate loans and mortgages can also be included in floating rate funds.
Floating rate loans refer to Bank loans to businesses. These loans are occasionally bundled and sold to investors as a fund. Floating rate loans are related to securities backed by mortgages, the packaged mortgages into which investors can buy and get an overall return rate from the fund's various mortgage rates.
Senior debt, such as floating-rate loans, has a more extraordinary claim on a company's assets in case of a Default. However, the term "senior" does not refer to credit quality; instead, it refers to the sequence in which creditors might claim a firm's assets to repay a debt if the company defaults. For example, floating-rate funds may invest in the floating rate bonds, the debt products in which the interest paid changes over time.
When compared to a fund or instrument with a fixed payment rate or fixed bond coupon rate, the primary advantage of a floating rate fund is its lower susceptibility to interest rate swings. As a result, investors choose floating rate funds to get a higher degree of interest or coupon payments when interest rates rise.
Floating rate funds are a good choice for the fixed income or conservative part of your portfolio. Floating rate debt, such as bonds and loans, can be held in a floating rate fund. These funds, like other credit funds, are administered with a variety of aims. For example, credit quality and duration can be targeted with strategies. The rates held in a floating rate fund and payable on a floating rate instrument adjust in response to a set of parameters or a defined interest rate level.
Floating rate funds are less susceptible to duration risk. The risk that the rate of interest will go up while an investor holds a fixed-income investment, causing them to miss higher market rates, is known as duration risk.
The income created by the underlying investments of a variable rate fund is handled by the portfolio managers and distributed to shareholders regularly. In addition, income and Capital gains may be distributed. Monthly payments are common, but they can also be made semi-annually, quarterly, or annually.
Aside from lower interest rate sensitivity and flexibility for the reflection of current interest rates, a floating rate fund allows an investor to diversify fixed-income investments, as those instruments typically make up the majority of bond holdings for the majority of the investors. Another advantage of a variable rate fund is that it allows an investor to purchase a diversified bond or loan portfolio for a low investment threshold instead of Investing in individual products for a higher dollar amount.
Investors must ensure that the securities in a variable rate fund are appropriate for their risk tolerance while reviewing the fund. Floating rate funds carry various risk levels across the credit quality spectrum, with high-yielding, lower-credit-quality investments posing significantly more significant hazards. However, with greater threats comes the possibility of greater reward.
Fund NAV Net Assets (Cr) 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 2022 (%) Debt Yield (YTM) Mod. Duration Eff. Maturity Aditya Birla Sun Life Floating Rate Fund - Long Term Growth ₹289.234
↑ 0.05 ₹13,015 1.6 3 5 5.6 4.8 7.32% 5M 26D 6M 18D ICICI Prudential Floating Interest Fund Growth ₹350.747
↓ -0.13 ₹11,869 1 3.8 4.2 5.6 4.3 7.86% 7M 20D 8Y 9M 25D Nippon India Floating Rate Fund Growth ₹37.4121
↑ 0.01 ₹7,348 1.6 2.7 3.9 6.1 3.8 7.63% 2Y 2M 1D 2Y 10M 28D Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 31 Jan 23
The primary objective of the schemes is to generate regular income through investment in a portfolio comprising substantially of floating rate debt / money market instruments. The schemes may invest a portion of its net assets in fixed rate debt securities and money market instruments. Aditya Birla Sun Life Floating Rate Fund - Long Term is a Debt - Floating Rate fund was launched on 25 Mar 09. It is a fund with Moderately Low risk and has given a Below is the key information for Aditya Birla Sun Life Floating Rate Fund - Long Term Returns up to 1 year are on (Erstwhile ICICI Prudential Savings Fund) The scheme aims to generate income consistent with the prudent risk from a portfolio comprising floating rate debt instruments, fixed rate debt instruments swapped for floating rate return, and also fixed rate instruments & money market instruments. ICICI Prudential Floating Interest Fund is a Debt - Floating Rate fund was launched on 18 Nov 05. It is a fund with Moderate risk and has given a Below is the key information for ICICI Prudential Floating Interest Fund Returns up to 1 year are on (Erstwhile Reliance Floating Rate Fund - Short Term Plan) The primary objective of the scheme is to generate regular income through investment in a portfolio comprising substantially of Floating Rate Debt Securities (including floating rate securitized debt, Money Market Instruments and Fixed Rate Debt Instruments swapped for floating rate returns). The scheme shall also invest in Fixed rate Debt Securities (including fixed rate Securitized Debt, Money Market Instruments and Floating Rate Debt Instruments swapped for fixed returns). Nippon India Floating Rate Fund is a Debt - Floating Rate fund was launched on 27 Aug 04. It is a fund with Moderately Low risk and has given a Below is the key information for Nippon India Floating Rate Fund Returns up to 1 year are on 1. Aditya Birla Sun Life Floating Rate Fund - Long Term
CAGR/Annualized
return of 8% since its launch. Ranked 14 in Floating Rate
category. Return for 2022 was 4.8% , 2021 was 3.6% and 2020 was 8.6% . Aditya Birla Sun Life Floating Rate Fund - Long Term
Growth Launch Date 25 Mar 09 NAV (31 Jan 23) ₹289.234 ↑ 0.05 (0.02 %) Net Assets (Cr) ₹13,015 on 31 Dec 22 Category Debt - Floating Rate AMC Birla Sun Life Asset Management Co Ltd Rating ☆☆☆☆ Risk Moderately Low Expense Ratio 0.38 Sharpe Ratio -0.26 Information Ratio 0 Alpha Ratio 0 Min Investment 1,000 Min SIP Investment 1,000 Exit Load NIL Yield to Maturity 7.32% Effective Maturity 6 Months 18 Days Modified Duration 5 Months 26 Days Growth of 10,000 investment over the years.
Date Value 31 Jan 18 ₹10,000 31 Jan 19 ₹10,780 31 Jan 20 ₹11,705 31 Jan 21 ₹12,608 31 Jan 22 ₹13,132 31 Jan 23 ₹13,783 Returns for Aditya Birla Sun Life Floating Rate Fund - Long Term
absolute basis
& more than 1 year are on CAGR (Compound Annual Growth Rate)
basis. as on 31 Jan 23 Duration Returns 1 Month 0.5% 3 Month 1.6% 6 Month 3% 1 Year 5% 3 Year 5.6% 5 Year 6.6% 10 Year 15 Year Since launch 8% Historical performance (Yearly) on absolute basis
Year Returns 2022 4.8% 2021 3.6% 2020 8.6% 2019 8.6% 2018 7.5% 2017 6.9% 2016 9.5% 2015 8.9% 2014 9.6% 2013 9.6% Fund Manager information for Aditya Birla Sun Life Floating Rate Fund - Long Term
Name Since Tenure Kaustubh Gupta 14 Jun 14 8.56 Yr. Harshil Suvarnkar 22 Mar 21 1.78 Yr. Data below for Aditya Birla Sun Life Floating Rate Fund - Long Term as on 31 Dec 22
Asset Allocation
Asset Class Value Cash 33.14% Debt 66.86% Debt Sector Allocation
Sector Value Corporate 54.06% Government 29.62% Cash Equivalent 16.32% Credit Quality
Rating Value AAA 100% Top Securities Holdings / Portfolio
Name Holding Value Quantity 7.42% Govt Stock 2033
Sovereign Bonds | -5% ₹623 Cr 62,500,000
↓ -7,000,000 Reliance Industries Limited
Debentures | -4% ₹556 Cr 5,500 Sikka Ports & Terminals Limited
Debentures | -4% ₹488 Cr 4,865 6.75% Govt Stock 2024
Sovereign Bonds | -3% ₹358 Cr 36,000,000
↑ 2,500,000 National Bank For Agriculture And Rural Development
Debentures | -3% ₹330 Cr 3,300
↓ -200 Nabha Power Limited
Debentures | -3% ₹322 Cr 3,250
↑ 250 08.21 HR UDAY 2023
Domestic Bonds | -2% ₹314 Cr 31,303,700
↓ -8,500,000 Jamnagar Utilities & Power Private Limited
Debentures | -2% ₹276 Cr 2,750
↑ 100 Sikka Ports & Terminals Limited
Debentures | -2% ₹267 Cr 2,680 L&T Finance Limited
Debentures | -2% ₹265 Cr 2,650
↓ -500 2. ICICI Prudential Floating Interest Fund
CAGR/Annualized
return of 7.6% since its launch. Ranked 35 in Floating Rate
category. Return for 2022 was 4.3% , 2021 was 3.8% and 2020 was 9.5% . ICICI Prudential Floating Interest Fund
Growth Launch Date 18 Nov 05 NAV (31 Jan 23) ₹350.747 ↓ -0.13 (-0.04 %) Net Assets (Cr) ₹11,869 on 31 Dec 22 Category Debt - Floating Rate AMC ICICI Prudential Asset Management Company Limited Rating ☆☆☆ Risk Moderate Expense Ratio 1.31 Sharpe Ratio -0.41 Information Ratio 0 Alpha Ratio 0 Min Investment 5,000 Min SIP Investment 100 Exit Load NIL Yield to Maturity 7.86% Effective Maturity 8 Years 9 Months 25 Days Modified Duration 7 Months 20 Days Growth of 10,000 investment over the years.
Date Value 31 Jan 18 ₹10,000 31 Jan 19 ₹10,690 31 Jan 20 ₹11,595 31 Jan 21 ₹12,635 31 Jan 22 ₹13,109 31 Jan 23 ₹13,661 Returns for ICICI Prudential Floating Interest Fund
absolute basis
& more than 1 year are on CAGR (Compound Annual Growth Rate)
basis. as on 31 Jan 23 Duration Returns 1 Month 0.2% 3 Month 1% 6 Month 3.8% 1 Year 4.2% 3 Year 5.6% 5 Year 6.4% 10 Year 15 Year Since launch 7.6% Historical performance (Yearly) on absolute basis
Year Returns 2022 4.3% 2021 3.8% 2020 9.5% 2019 8.4% 2018 6.6% 2017 6.8% 2016 8.9% 2015 8.1% 2014 9.2% 2013 9.2% Fund Manager information for ICICI Prudential Floating Interest Fund
Name Since Tenure Rahul Goswami 27 Sep 12 10.27 Yr. Nikhil Kabra 3 Aug 16 6.42 Yr. Data below for ICICI Prudential Floating Interest Fund as on 31 Dec 22
Asset Allocation
Asset Class Value Cash 6.38% Debt 93.62% Debt Sector Allocation
Sector Value Government 74.76% Corporate 20.21% Cash Equivalent 4.87% Securitized 0.16% Credit Quality
Rating Value AA 10.36% AAA 89.64% Top Securities Holdings / Portfolio
Name Holding Value Quantity 7.42% Govt Stock 2033
Sovereign Bonds | -47% ₹5,715 Cr 573,757,300 7.01% Govt Stock 2028
Sovereign Bonds | -12% ₹1,426 Cr 144,726,248 7.69% Govt Stock 2034
Sovereign Bonds | -11% ₹1,323 Cr 135,196,560 7.26% Govt Stock 2032
Sovereign Bonds | -2% ₹200 Cr 20,000,000
↑ 20,000,000 Godrej Industries Limited
Debentures | -1% ₹162 Cr 1,650 Tata Capital Financial Services Limited
Debentures | -1% ₹140 Cr 1,400 Embassy Office Parks Reit
Debentures | -1% ₹122 Cr 1,250 Bharti Telecom Limited
Debentures | -1% ₹105 Cr 1,050 State Bank Of India
Debentures | -1% ₹105 Cr 1,060
↓ -250 Aditya Birla Finance Limited
Debentures | -1% ₹100 Cr 1,000 3. Nippon India Floating Rate Fund
CAGR/Annualized
return of 7.4% since its launch. Ranked 32 in Floating Rate
category. Return for 2022 was 3.8% , 2021 was 3.7% and 2020 was 11.3% . Nippon India Floating Rate Fund
Growth Launch Date 27 Aug 04 NAV (31 Jan 23) ₹37.4121 ↑ 0.01 (0.03 %) Net Assets (Cr) ₹7,348 on 31 Dec 22 Category Debt - Floating Rate AMC Nippon Life Asset Management Ltd. Rating ☆☆☆ Risk Moderately Low Expense Ratio 0.58 Sharpe Ratio -1.35 Information Ratio 0.19 Alpha Ratio -0.48 Min Investment 5,000 Min SIP Investment 100 Exit Load 0-1 Months (0.5%),1 Months and above(NIL) Yield to Maturity 7.63% Effective Maturity 2 Years 10 Months 28 Days Modified Duration 2 Years 2 Months 1 Day Growth of 10,000 investment over the years.
Date Value 31 Jan 18 ₹10,000 31 Jan 19 ₹10,627 31 Jan 20 ₹11,572 31 Jan 21 ₹12,757 31 Jan 22 ₹13,318 Returns for Nippon India Floating Rate Fund
absolute basis
& more than 1 year are on CAGR (Compound Annual Growth Rate)
basis. as on 31 Jan 23 Duration Returns 1 Month 0.5% 3 Month 1.6% 6 Month 2.7% 1 Year 3.9% 3 Year 6.1% 5 Year 6.7% 10 Year 15 Year Since launch 7.4% Historical performance (Yearly) on absolute basis
Year Returns 2022 3.8% 2021 3.7% 2020 11.3% 2019 9% 2018 5.8% 2017 5.9% 2016 9% 2015 8.6% 2014 9.8% 2013 7.9% Fund Manager information for Nippon India Floating Rate Fund
Name Since Tenure Anju Chhajer 1 Feb 20 2.92 Yr. Kinjal Desai 25 May 18 4.61 Yr. Akshay Sharma 1 Dec 22 0.08 Yr. Data below for Nippon India Floating Rate Fund as on 31 Dec 22
Asset Allocation
Asset Class Value Cash 8.39% Debt 91.61% Debt Sector Allocation
Sector Value Corporate 52.41% Government 39.66% Cash Equivalent 6.12% Securitized 1.8% Credit Quality
Rating Value AAA 100% Top Securities Holdings / Portfolio
Name Holding Value Quantity Small Industries Development Bank Of India
Debentures | -7% ₹545 Cr 5,500 Power Finance Corporation Ltd.
Debentures | -5% ₹401 Cr 4,000 7.01% Govt Stock 2028
Sovereign Bonds | -5% ₹370 Cr 37,500,000
↑ 37,500,000 HDB Financial Services 8.04%
Debentures | -5% ₹351 Cr 3,500 5.63% Govt Stock 2026
Sovereign Bonds | -5% ₹346 Cr 36,000,000 7.59% Govt Stock 2026
Sovereign Bonds | -5% ₹345 Cr 34,000,000
↓ -20,000,000 National Bank For Agriculture And Rural Development
Debentures | -4% ₹322 Cr 3,250 Tata Capital Housing Finance Limited
Debentures | -4% ₹300 Cr 3,000
↓ -1,000 Bajaj Finance Limited
Debentures | -4% ₹290 Cr 2,900
↓ -1,500 Reliance Industries Limited
Debentures | -4% ₹278 Cr 2,750
Some of the benefits of Floating Rate Funds are:
Floating rate funds may hold corporate bonds near to junk status or loans in danger of default. Although floating funds offer higher returns in a rising rate environment (because they move with rates), investors must assess the dangers of investing in the funds and investigate the fund holdings. Other short-term bond funds that invest solely in Treasuries exist, although they may have a fixed rate or a lower yield than floating rate funds. Before making a decision, investors must assess the risks and rewards of each investment.
Some of the ideal ways to choose best floating rate funds are:
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