Floater Mutual Funds

• These funds belong to the debt mutual fund category and primarily invest in debt instruments with floating or variable interest rates. 
• As per SEBI regulations, floater funds have to invest 65% of their total assets in floating-rate debt securities.
• As these funds are open-ended in nature, units of floating funds can be bought and sold on any business day at their net asset value (NAV).
• However these funds carry credit risks and limited capital appreciation potential, making them less favorable in a decreasing interest rate scenario.

Floater funds work by investing at least 65% of their assets in floating-rate debt instruments with variable interest rates. These rates are periodically adjusted in line with prevailing market conditions or benchmark indicators, such as the Reserve Bank of India’s (RBI) repo rate. 

In a rising interest rate environment, floating-rate bonds may provide a higher return for investors. Meanwhile, falling interest rates can have an adverse effect on coupon payouts. 

Floater funds may therefore be less sensitive to interest rate changes compared to fixed-rate debt funds. However, their returns are also influenced by factors such as credit quality, market conditions and the performance of the underlying securities.

Floater funds may not be suitable for investors looking for fixed or predictable returns.

• Investors have a low to moderate risk tolerance.
• Investors with a short to medium-term investment horizon.
• Investors who are looking for alternatives to fixed deposits and other debt instruments.
• Investors looking to diversify their portfolios beyond equities can include floater funds to spread risk.

You can invest in these funds directly through the Paisabazaar app.

Step 1: Download the Paisabazaar app and log in securely.
Step 2: Navigate to the investment products section and select 'Mutual fund'.
Step 3: Click on ‘View all’ under the popular fund section.
Step 4: Filter and explore various floater mutual funds. 
Step 5: Select your preferred floater fund and invest via SIP or lump sum.

The taxability of floater funds remains the same as debt funds.