What are Floater Funds?
A mutual fund that allocates the majority of its assets in debt instruments with floating interest rates (floating rate instruments) are known as Floater Funds. These funds are categorized under debt mutual funds. They take advantage of the fluctuation in interest rates to generate quality returns for investors.
Floating rate securities have variable interest rates unlike other debt instruments such as bonds which have a fixed coupon rate. Every floating rate instrument has a specific benchmark, wherein the interest rate of the instrument changes in accordance to the change in benchmark rate
When the interest rate rise in the debt market, returns from floater funds take a jump. The average floating returns have been 8.27% in the past 5 years which makes them a preferred choice for investors looking for secure investment avenues with decent returns.
Asset Management Companies (AMC) in India offer numerous floater funds to investors for them to capitalize on the changing interest rates in the debt market.
Features of Floater Funds
- Mixed portfolio of debt securities
Floater funds invest majority of their assets in floating rate instruments, which yield quality returns during favourable interest rate movement. Rest of the assets are allocated to fixed-income securities. This diversification among debt securities lead to better returns in the long investment horizon.
- Less Risky
Investment in Floater Funds is suitable for risk averse investors who want to earn quality returns but want a secure investment option. Compared to equity investment, floater funds are more secure investment avenue. However, Credit risk is there in case of floater funds as well. This risk arises when the issuer of the bond defaults on its payment of dues. That is why one should invest in floater funds that have high credit rating securities in their investment portfolio.
- High Yield
Floater Funds yield high returns in the long run compared to other kinds of debt investment and bank fixed deposit. Unlike other short term debt funds, these funds tend to be less volatile. When interest rates in the debt market are expected to rise, one should leverage the opportunity to earn high returns via investment in floater funds.
- Taxation Policy on Floater Funds
Floater Funds are taxed just like any other debt mutual fund in India. For a holding period of less than 3 years, Short Term Capital Gains (STCG) is levied, which is according to the income tax slab of investor. If an investment is held for more than 3 years, Long Term Capitals Gains Tax is levied, which currently stands at 20%, with the benefit of indexation.
- Open-ended scheme
Investors can take subscription of floater funds at any time of the year as per their wish, investment objectives and financial goals. However, one has to make a lump-sum investment since investment via Systematic Investment Plan (SIP) is not allowed in floater funds.
Two kinds of Floater Funds
- Short-term floater funds
These funds invest predominantly in debt securities with short term maturities and high liquidity such as T-Bills, certificate of deposits, government securities, etc.
- Long-term floater funds
These funds invest in debt securities with long-term maturities. Major portion of investment portfolio of these funds consists of floating rate debt instruments and the remaining is invested in either fixed rate securities or money-market instruments.
List of Floater Funds in India in 2019
Here is a list of floater funds in India which you can consider investing in:
|Fund Name||AUM (Cr)||3-Year||5-Year|
|HDFC Floating Rate Debt Fund – Direct Plan||11341.47||8%||8%|
|ICICI Prudential Floating Interest Fund – Direct Plan||7109.88||8%||9%|
|Reliance Floating Rate Fund – Direct Plan||6197.61||7%||8%|
|Aditya Birla Sun Life Floating Rate Fund – Direct Plan||5928.13||7.94%||8.65%|
|Franklin India Floating Rate Fund – Direct Plan||245.86||7%||6%|
|Aditya Birla Sun Life Floating Rate Fund – Regular Plan||5841.17||7.81%||8.44%|
|Nippon India Floating Rate Fund – Direct Plan||6079.65||7.34%||8.35%|
|Nippon India Floating Rate Fund – Growth||6079.65||7.00%||7.91%|
|HDFC Floating Rate Debt Fund -Growth||11083.59||7.58%||8.18%|
|ICICI Prudential Floating Interest Fund – Growth||6748.61||7.21%||7.80%|
|Franklin India Floating Rate Fund – Growth||230.51||6.50%||6.43%|
|Kotak Floating Rate Fund – Regular Plan||150.77||–||–|
|UTI – Floater Fund – Regular Plan||423||–||–|
|UTI – Floater Fund – Direct Plan||569.94||–||–|
|Kotak Floating Rate Fund – Direct Plan||37.88||–||–|