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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 (%) 2021 (%) Debt Yield (YTM) Mod. Duration Eff. Maturity Aditya Birla Sun Life Floating Rate Fund - Long Term Growth ₹278.939
↑ 0.05 ₹13,797 0.6 1.7 3.5 6 3.6 6.43% 8M 5D 1Y 5M 12D Nippon India Floating Rate Fund Growth ₹36.1906
↑ 0.01 ₹13,473 0 0.9 2.9 6.7 3.7 5.75% 1Y 1M 17D 1Y 6M 4D ICICI Prudential Floating Interest Fund Growth ₹335.242
↓ -0.09 ₹15,667 -0.3 -0.1 1.7 5.8 3.8 6.13% 10M 13D 7Y 7M 10D Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 24 Jun 22
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 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 (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 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 2021 was 3.6% , 2020 was 8.6% and 2019 was 8.6% . Aditya Birla Sun Life Floating Rate Fund - Long Term
Growth Launch Date 25 Mar 09 NAV (24 Jun 22) ₹278.939 ↑ 0.05 (0.02 %) Net Assets (Cr) ₹13,797 on 15 Jun 22 Category Debt - Floating Rate AMC Birla Sun Life Asset Management Co Ltd Rating ☆☆☆☆ Risk Moderately Low Expense Ratio 0.38 Sharpe Ratio -0.07 Information Ratio 0 Alpha Ratio 0 Min Investment 1,000 Min SIP Investment 1,000 Exit Load NIL Yield to Maturity 6.43% Effective Maturity 1 Year 5 Months 12 Days Modified Duration 8 Months 5 Days Growth of 10,000 investment over the years.
Date Value 31 May 17 ₹10,000 31 May 18 ₹10,639 31 May 19 ₹11,575 31 May 20 ₹12,582 31 May 21 ₹13,356 31 May 22 ₹13,837 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 24 Jun 22 Duration Returns 1 Month 0.3% 3 Month 0.6% 6 Month 1.7% 1 Year 3.5% 3 Year 6% 5 Year 6.6% 10 Year 15 Year Since launch 8% Historical performance (Yearly) on absolute basis
Year Returns 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% 2012 10.1% Fund Manager information for Aditya Birla Sun Life Floating Rate Fund - Long Term
Name Since Tenure Kaustubh Gupta 14 Jun 14 7.97 Yr. Harshil Suvarnkar 22 Mar 21 1.19 Yr. Data below for Aditya Birla Sun Life Floating Rate Fund - Long Term as on 15 Jun 22
Asset Allocation
Asset Class Value Cash 25.51% Debt 74.49% Debt Sector Allocation
Sector Value Corporate 48.74% Government 37.98% Cash Equivalent 13.27% Credit Quality
Rating Value AAA 100% Top Securities Holdings / Portfolio
Name Holding Value Quantity 3.8% Govt Stock 2024
Sovereign Bonds | -6% ₹1,010 Cr 102,000,000
↑ 10,500,000 5.53% Govt Stock 2033
Sovereign Bonds | -4% ₹704 Cr 71,000,000 Sikka Ports & Terminals Limited
Debentures | -3% ₹494 Cr 4,850 08.21 HR UDAY 2023
Domestic Bonds | -2% ₹372 Cr 36,603,700 National Bank For Agriculture And Rural Development
Debentures | -2% ₹347 Cr 3,500 L&T Finance Limited
Debentures | -2% ₹328 Cr 3,250 Reliance Industries Limited
Debentures | -2% ₹311 Cr 3,000 National Bank For Agriculture And Rural Development
Debentures | -2% ₹308 Cr 3,100 Mahindra & Mahindra Financial Services Ltd
Debentures | -2% ₹298 Cr 3,000 Nabha Power Limited
Debentures | -2% ₹296 Cr 3,000 2. Nippon India Floating Rate Fund
CAGR/Annualized
return of 7.5% since its launch. Ranked 32 in Floating Rate
category. Return for 2021 was 3.7% , 2020 was 11.3% and 2019 was 9% . Nippon India Floating Rate Fund
Growth Launch Date 27 Aug 04 NAV (24 Jun 22) ₹36.1906 ↑ 0.01 (0.02 %) Net Assets (Cr) ₹13,473 on 31 May 22 Category Debt - Floating Rate AMC Nippon Life Asset Management Ltd. Rating ☆☆☆ Risk Moderately Low Expense Ratio 0.56 Sharpe Ratio -0.63 Information Ratio 0.22 Alpha Ratio -0.02 Min Investment 5,000 Min SIP Investment 100 Exit Load 0-1 Months (0.5%),1 Months and above(NIL) Yield to Maturity 5.75% Effective Maturity 1 Year 6 Months 4 Days Modified Duration 1 Year 1 Month 17 Days Growth of 10,000 investment over the years.
Date Value 31 May 17 ₹10,000 31 May 18 ₹10,474 31 May 19 ₹11,377 31 May 20 ₹12,510 31 May 21 ₹13,467 31 May 22 ₹13,869 Returns for Nippon India Floating Rate Fund
absolute basis
& more than 1 year are on CAGR (Compound Annual Growth Rate)
basis. as on 24 Jun 22 Duration Returns 1 Month 0.3% 3 Month 0% 6 Month 0.9% 1 Year 2.9% 3 Year 6.7% 5 Year 6.6% 10 Year 15 Year Since launch 7.5% Historical performance (Yearly) on absolute basis
Year Returns 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% 2012 9.7% Fund Manager information for Nippon India Floating Rate Fund
Name Since Tenure Anju Chhajer 1 Feb 20 2.33 Yr. Kinjal Desai 25 May 18 4.02 Yr. Data below for Nippon India Floating Rate Fund as on 31 May 22
Asset Allocation
Asset Class Value Cash 9.14% Debt 90.86% Debt Sector Allocation
Sector Value Corporate 52.05% Government 37.85% Cash Equivalent 8.63% Securitized 1.46% Credit Quality
Rating Value AAA 100% Top Securities Holdings / Portfolio
Name Holding Value Quantity 7.35% Govt Stock 2024
Sovereign Bonds | -7% ₹967 Cr 95,000,000
↑ 3,000,000 State Bank Of India
Debentures | -4% ₹620 Cr 6,050 Bajaj Housing Finance Limited
Debentures | -3% ₹454 Cr 4,650 Reliance Industries Limited
Debentures | -3% ₹352 Cr 3,500 Tata Capital Limited
Debentures | -2% ₹299 Cr 3,000 7.68% Govt Stock 2023
Sovereign Bonds | -2% ₹291 Cr 28,500,000 Tata Capital Housing Finance Limited
Debentures | -2% ₹289 Cr 2,950 L&T Finance Limited
Debentures | -2% ₹289 Cr 2,850 Reliance Industries Limited
Debentures | -2% ₹285 Cr 2,750 Larsen And Toubro Limited
Debentures | -2% ₹277 Cr 2,750 3. ICICI Prudential Floating Interest Fund
CAGR/Annualized
return of 7.6% since its launch. Ranked 35 in Floating Rate
category. Return for 2021 was 3.8% , 2020 was 9.5% and 2019 was 8.4% . ICICI Prudential Floating Interest Fund
Growth Launch Date 18 Nov 05 NAV (24 Jun 22) ₹335.242 ↓ -0.09 (-0.03 %) Net Assets (Cr) ₹15,667 on 31 May 22 Category Debt - Floating Rate AMC ICICI Prudential Asset Management Company Limited Rating ☆☆☆ Risk Moderate Expense Ratio 1.35 Sharpe Ratio -0.49 Information Ratio 0 Alpha Ratio 0 Min Investment 5,000 Min SIP Investment 100 Exit Load NIL Yield to Maturity 6.13% Effective Maturity 7 Years 7 Months 10 Days Modified Duration 10 Months 13 Days Growth of 10,000 investment over the years.
Date Value 31 May 17 ₹10,000 31 May 18 ₹10,571 31 May 19 ₹11,393 31 May 20 ₹12,311 31 May 21 ₹13,242 31 May 22 ₹13,634 Returns for ICICI Prudential Floating Interest Fund
absolute basis
& more than 1 year are on CAGR (Compound Annual Growth Rate)
basis. as on 24 Jun 22 Duration Returns 1 Month -0.6% 3 Month -0.3% 6 Month -0.1% 1 Year 1.7% 3 Year 5.8% 5 Year 6.2% 10 Year 15 Year Since launch 7.6% Historical performance (Yearly) on absolute basis
Year Returns 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% 2012 9.7% Fund Manager information for ICICI Prudential Floating Interest Fund
Name Since Tenure Rahul Goswami 27 Sep 12 9.68 Yr. Nikhil Kabra 3 Aug 16 5.83 Yr. Data below for ICICI Prudential Floating Interest Fund as on 31 May 22
Asset Allocation
Asset Class Value Cash 15.29% Debt 84.71% Debt Sector Allocation
Sector Value Government 58.32% Corporate 26.23% Cash Equivalent 15.29% Securitized 0.16% Credit Quality
Rating Value AA 15.62% AAA 84.38% Top Securities Holdings / Portfolio
Name Holding Value Quantity 5.53% Govt Stock 2033
Sovereign Bonds | -38% ₹6,000 Cr 604,757,300
↑ 1,500,000 4.68% Govt Stock 2034
Sovereign Bonds | -7% ₹1,066 Cr 109,696,560 4.93% Govt Stock 2028
Sovereign Bonds | -6% ₹1,035 Cr 105,335,500 3.8% Govt Stock 2024
Sovereign Bonds | -5% ₹733 Cr 74,000,000 Motherson Sumi Systems Limited
Debentures | -2% ₹298 Cr 3,000 State Bank Of India
Debentures | -2% ₹253 Cr 2,500 SRF Limited
Debentures | -2% ₹250 Cr 2,500 6.54% Govt Stock 2032
Sovereign Bonds | -1% ₹220 Cr 23,250,000
↓ -5,041,150 Godrej Industries Limited
Debentures | -1% ₹162 Cr 1,650 Godrej Properties Limited
Debentures | -1% ₹150 Cr 1,500
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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