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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 (%) 2023 (%) Debt Yield (YTM) Mod. Duration Eff. Maturity Aditya Birla Sun Life Floating Rate Fund - Long Term Growth ₹323.271
↑ 0.12 ₹12,592 1.9 4 7.6 6.1 7.5 7.81% 1Y 14D 2Y 3M ICICI Prudential Floating Interest Fund Growth ₹394.552
↑ 0.16 ₹9,802 1.9 4.2 7.8 6.1 7.7 8.26% 1Y 2M 16D 6Y 7M 24D Nippon India Floating Rate Fund Growth ₹41.7472
↑ 0.02 ₹7,823 2.1 4.1 7.5 5.7 7.2 7.9% 2Y 9M 7D 3Y 6M 22D Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 25 Jul 24
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 2023 was 7.5% , 2022 was 4.8% and 2021 was 3.6% . Aditya Birla Sun Life Floating Rate Fund - Long Term
Growth Launch Date 25 Mar 09 NAV (25 Jul 24) ₹323.271 ↑ 0.12 (0.04 %) Net Assets (Cr) ₹12,592 on 30 Jun 24 Category Debt - Floating Rate AMC Birla Sun Life Asset Management Co Ltd Rating ☆☆☆☆ Risk Moderately Low Expense Ratio 0.45 Sharpe Ratio 1.75 Information Ratio 0 Alpha Ratio 0 Min Investment 1,000 Min SIP Investment 1,000 Exit Load NIL Yield to Maturity 7.81% Effective Maturity 2 Years 3 Months Modified Duration 1 Year 14 Days Growth of 10,000 investment over the years.
Date Value 30 Jun 19 ₹10,000 30 Jun 20 ₹10,951 30 Jun 21 ₹11,515 30 Jun 22 ₹11,939 30 Jun 23 ₹12,772 30 Jun 24 ₹13,743 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 25 Jul 24 Duration Returns 1 Month 0.7% 3 Month 1.9% 6 Month 4% 1 Year 7.6% 3 Year 6.1% 5 Year 6.5% 10 Year 15 Year Since launch 8% Historical performance (Yearly) on absolute basis
Year Returns 2023 7.5% 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% Fund Manager information for Aditya Birla Sun Life Floating Rate Fund - Long Term
Name Since Tenure Kaustubh Gupta 20 Jun 14 10.04 Yr. Harshil Suvarnkar 22 Mar 21 3.28 Yr. Dhaval Joshi 21 Nov 22 1.61 Yr. Data below for Aditya Birla Sun Life Floating Rate Fund - Long Term as on 30 Jun 24
Asset Allocation
Asset Class Value Cash 18.71% Debt 81.02% Other 0.27% Debt Sector Allocation
Sector Value Corporate 64.56% Government 24.48% Cash Equivalent 9.78% Securitized 0.91% Credit Quality
Rating Value AAA 100% Top Securities Holdings / Portfolio
Name Holding Value Quantity 8.34% Govt Stock 2033
Sovereign Bonds | -9% ₹1,111 Cr 108,500,000 LIC Housing Finance Ltd
Debentures | -3% ₹436 Cr 4,500 National Bank For Agriculture And Rural Development
Debentures | -3% ₹397 Cr 4,050 Hdb Financial Services Limited
Debentures | -2% ₹299 Cr 30,000 Bajaj Housing Finance Limited
Debentures | -2% ₹256 Cr 25,500 Rural Electrification Corporation Limited
Debentures | -2% ₹224 Cr 22,500 ICICI Home Finance Limited
Debentures | -2% ₹200 Cr 20,000 HDB Financial Services 8.04%
Debentures | -2% ₹199 Cr 2,000 State Bank Of India
Debentures | -1% ₹184 Cr 1,900 ICICI Home Finance Company Limited
Debentures | -1% ₹160 Cr 16,000 2. ICICI Prudential Floating Interest Fund
CAGR/Annualized
return of 7.6% since its launch. Ranked 35 in Floating Rate
category. Return for 2023 was 7.7% , 2022 was 4.3% and 2021 was 3.8% . ICICI Prudential Floating Interest Fund
Growth Launch Date 18 Nov 05 NAV (25 Jul 24) ₹394.552 ↑ 0.16 (0.04 %) Net Assets (Cr) ₹9,802 on 15 Jul 24 Category Debt - Floating Rate AMC ICICI Prudential Asset Management Company Limited Rating ☆☆☆ Risk Moderate Expense Ratio 1.29 Sharpe Ratio 1.09 Information Ratio 0 Alpha Ratio 0 Min Investment 5,000 Min SIP Investment 100 Exit Load NIL Yield to Maturity 8.26% Effective Maturity 6 Years 7 Months 24 Days Modified Duration 1 Year 2 Months 16 Days Growth of 10,000 investment over the years.
Date Value 30 Jun 19 ₹10,000 30 Jun 20 ₹10,913 30 Jun 21 ₹11,645 30 Jun 22 ₹11,871 30 Jun 23 ₹12,840 30 Jun 24 ₹13,854 Returns for ICICI Prudential Floating Interest Fund
absolute basis
& more than 1 year are on CAGR (Compound Annual Growth Rate)
basis. as on 25 Jul 24 Duration Returns 1 Month 0.7% 3 Month 1.9% 6 Month 4.2% 1 Year 7.8% 3 Year 6.1% 5 Year 6.7% 10 Year 15 Year Since launch 7.6% Historical performance (Yearly) on absolute basis
Year Returns 2023 7.7% 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% Fund Manager information for ICICI Prudential Floating Interest Fund
Name Since Tenure Rohan Maru 12 Jun 23 1.05 Yr. Darshil Dedhia 12 Jun 23 1.05 Yr. Data below for ICICI Prudential Floating Interest Fund as on 15 Jul 24
Asset Allocation
Asset Class Value Cash 7.76% Debt 91.92% Other 0.31% Debt Sector Allocation
Sector Value Government 56.82% Corporate 37.3% Cash Equivalent 5.54% Securitized 0.03% Credit Quality
Rating Value AA 20.17% AAA 79.83% Top Securities Holdings / Portfolio
Name Holding Value Quantity 8.34% Govt Stock 2033
Sovereign Bonds | -41% ₹4,047 Cr 395,238,780 8% Govt Stock 2034
Sovereign Bonds | -10% ₹979 Cr 97,446,560 LIC Housing Finance Limited
Debentures | -4% ₹364 Cr 3,650 Muthoot Finance Limited
Debentures | -3% ₹249 Cr 25,000 Bharti Telecom Limited
Debentures | -2% ₹200 Cr 20,000 Punjab National Bank
Domestic Bonds | -2% ₹191 Cr 4,000
↑ 4,000 7.18% Govt Stock 2033
Sovereign Bonds | -2% ₹188 Cr 18,645,330 7.72% Govt Stock 2028
Sovereign Bonds | -1% ₹143 Cr 14,273,598
↓ -10,000,000 Bharti Telecom Limited
Debentures | -1% ₹105 Cr 1,050 SANSAR JUNE 2024 TRUST
Unlisted bonds | -1% ₹100 Cr 1,000,000,000
↑ 1,000,000,000 3. Nippon India Floating Rate Fund
CAGR/Annualized
return of 7.4% since its launch. Ranked 32 in Floating Rate
category. Return for 2023 was 7.2% , 2022 was 3.8% and 2021 was 3.7% . Nippon India Floating Rate Fund
Growth Launch Date 27 Aug 04 NAV (25 Jul 24) ₹41.7472 ↑ 0.02 (0.05 %) Net Assets (Cr) ₹7,823 on 30 Jun 24 Category Debt - Floating Rate AMC Nippon Life Asset Management Ltd. Rating ☆☆☆ Risk Moderately Low Expense Ratio 0.6 Sharpe Ratio 0.78 Information Ratio 0 Alpha Ratio 0 Min Investment 5,000 Min SIP Investment 100 Exit Load 0-1 Months (0.5%),1 Months and above(NIL) Yield to Maturity 7.9% Effective Maturity 3 Years 6 Months 22 Days Modified Duration 2 Years 9 Months 7 Days Growth of 10,000 investment over the years.
Date Value 30 Jun 19 ₹10,000 30 Jun 20 ₹11,135 30 Jun 21 ₹11,802 30 Jun 22 ₹12,170 30 Jun 23 ₹12,976 30 Jun 24 ₹13,928 Returns for Nippon India Floating Rate Fund
absolute basis
& more than 1 year are on CAGR (Compound Annual Growth Rate)
basis. as on 25 Jul 24 Duration Returns 1 Month 0.7% 3 Month 2.1% 6 Month 4.1% 1 Year 7.5% 3 Year 5.7% 5 Year 6.8% 10 Year 15 Year Since launch 7.4% Historical performance (Yearly) on absolute basis
Year Returns 2023 7.2% 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% Fund Manager information for Nippon India Floating Rate Fund
Name Since Tenure Anju Chhajer 1 Feb 20 4.42 Yr. Kinjal Desai 25 May 18 6.11 Yr. Data below for Nippon India Floating Rate Fund as on 30 Jun 24
Asset Allocation
Asset Class Value Cash 5.57% Debt 94.17% Other 0.26% Debt Sector Allocation
Sector Value Corporate 61.41% Government 33.99% Cash Equivalent 4.35% Credit Quality
Rating Value AAA 100% Top Securities Holdings / Portfolio
Name Holding Value Quantity 7.72% Govt Stock 2028
Sovereign Bonds | -8% ₹597 Cr 59,500,000 HDB Financial Services 8.04%
Debentures | -4% ₹349 Cr 3,500 Small Industries Development Bank Of India
Debentures | -4% ₹326 Cr 32,500 8% Govt Stock 2034
Sovereign Bonds | -4% ₹306 Cr 30,500,000 Jamnagar Utilities & Power Private Limited
Debentures | -3% ₹272 Cr 2,800 Indian Railway Finance Corporation Limited
Debentures | -3% ₹251 Cr 25,000 Rural Electrification Corporation Limited
Debentures | -3% ₹251 Cr 25,000 Power Finance Corporation Ltd.
Debentures | -3% ₹220 Cr 22,000 National Bank For Agriculture And Rural Development
Debentures | -3% ₹211 Cr 21,000 State Bank Of India
Debentures | -3% ₹210 Cr 2,150
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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