What are Floater Funds?
Floater funds or floating rate funds are debt mutual funds, which primarily invest in floating rate debt instruments. As per the SEBI guidelines, floater funds have to invest at least 65% of their total portfolio in floating rate instruments.
As the supply of floating rate bonds or other floating rate instruments is not high, mutual funds tend to purchase interest rate swaps to maintain their required floating rate exposure. Interest rate swaps are derivative contracts, which allows the holder of a fixed rate bond to convert its fixed rate exposure into a market linked floating rate through a counterparty to reduce the interest risk of that bond.
Table of Top 10 Floater Funds
| Fund Name |
Returns (%) |
|||
| 1 year | 3 year | 5 year | 10 year | |
| ICICI Prudential Floating Interest Fund | 8.64 | 8.78 | 7.21 | 7.98 |
| Franklin India Floating Rate Fund | 9.31 | 8.70 | 6.95 | 7.03 |
| DSP Floater Fund | 9.06 | 8.56 | — | — |
| HDFC Floating Rate Debt Fund | 8.69 | 8.27 | 6.88 | 7.58 |
| Kotak Floating Rate Fund | 9.29 | 8.24 | 6.84 | — |
| Axis Floater Fund | 8.56 | 8.22 | — | — |
| Nippon India Floater Fund | 9.15 | 8.05 | 6.70 | 7.64 |
| Aditya Birla Sun Life Floating Rate Fund | 8.47 | 7.90 | 6.52 | 7.57 |
| SBI Floating Rate Debt Fund | 8.29 | 7.88 | — | — |
| Bandhan Floater Fund | 8.99 | 7.85 | — | — |
Data as on August 14, 2025
Why Invest in Floating Rate Funds?
- As floating rate funds primarily invest in floating rate debt securities and fixed rate income instruments swapped for floating rate returns, floater funds have the potential to generate higher accrual income during rising interest rate cycles.
- Floater funds eliminate the hassle of timing bonds and other fixed income investments as per the changing interest rate cycles
- Floating rate funds provide an alternative to debt funds having longer durations, which usually offer low to negative returns during a rising interest rate regime.
Risks of Investing in Floater Funds:
- As the coupon rates of floating rate instruments fall during easing rate cycles, floating rate funds usually generate lower returns than other debt fund categories, especially those having longer duration, during falling interest rate regimes.
- While floater funds carry lower interest rate risk than other debt funds, the floating rate instruments held by floater funds may still be susceptible to liquidity risk, default risk or other risks associated with any fixed income instruments.
Who Should Invest in Floater Funds?
- Investors seeking exposure to floating rate fixed income instruments to reduce their interest rate risk
- Investors seeking to park their surplus cash for short investment horizons
- Investors having longer investment horizons but looking for an efficient debt fund option with lower interest rate risk and credit risk can also consider floater funds as an alternative to ultra short duration mutual funds, short duration debt funds, low duration funds, etc.