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Best Floater Funds
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List of Floater Mutual Funds in 2024
| Fund name | AUM | 1Y CAGR | 3Y CAGR | Till Date CAGR |
|---|---|---|---|---|
 | ₹ 15,003 Cr | 8.6% | 6.9% | 7.9% |
 | ₹ 13,141 Cr | 8.2% | 6.8% | 8% |
 | ₹ 8,674 Cr | 8.9% | 7.1% | 8.3% |
 | ₹ 7,821 Cr | 8.6% | 6.6% | 7.9% |
 | ₹ 1,417 Cr | 7.5% | 6.2% | 6.8% |
 | ₹ 303 Cr | 9% | 7.1% | 7% |
 | ₹ 329 Cr | 8.4% | 6.5% | 6% |
 | ₹ 145 Cr | 8.1% | 6.7% | 6.4% |
 | ₹ 1,169 Cr | 8.5% | 6.7% | 6.2% |
 | ₹ 727 Cr | 9.6% | 6.6% | 6.7% |
 | ₹ 233 Cr | 9.9% | 7.1% | 6.8% |
 | ₹ 3,702 Cr | 8.7% | 6.6% | 7.2% |
Top 10 Floater Mutual Funds to invest in 2024
Below are the floater mutual funds in india:
1. HDFC Floating Rate Debt Fund Direct (G)
HDFC Floating Rate Debt Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 8.6%, a 3 Years return of 6.9% and a 5 Years return of 6.9%. The fund has an expense ratio of 0.3% and an AUM of ₹15004 crores as of 2024-11-29. It was Launched on 2013-01-01. The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 096.96% to debt and 3.04% to other assets.
2. Aditya Birla Sun Life Floating Rate Fund Direct (G)
Aditya Birla Sun Life Floating Rate Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 8.2%, a 3 Years return of 6.8% and a 5 Years return of 6.6%. The fund has an expense ratio of 0.2% and an AUM of ₹13142 crores as of 2024-11-29.The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 095.77% to debt and 4.23% to other assets.
3. ICICI Prudential Floating Interest Fund Direct (G)
ICICI Prudential Floating Interest Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 8.9%, a 3 Years return of 7.1% and a 5 Years return of 7.4%. The fund has an expense ratio of 0.6% and an AUM of ₹8675 crores as of 2024-11-29.The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 096.39% to debt and 3.61% to other assets.
4. Nippon India Floating Rate Fund Direct (G)
Nippon India Floating Rate Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 8.6%, a 3 Years return of 6.6% and a 5 Years return of 7.1%. The fund has an expense ratio of 0.3% and an AUM of ₹7822 crores as of 2024-11-29.The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 094.95% to debt and 5.05% to other assets.
5. UTI Floater Fund Direct (G)
UTI Floater Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 7.5%, a 3 Years return of 6.2% and a 5 Years return of 6.2%. The fund has an expense ratio of 0.4% and an AUM of ₹1418 crores as of 2024-11-29. It was Launched on 2018-10-30. The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 098.03% to debt and 1.97% to other assets.
6. Franklin India Floating Rate Fund Direct (G)
Franklin India Floating Rate Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 9.0%, a 3 Years return of 7.1% and a 5 Years return of 6.5%. The fund has an expense ratio of 0.2% and an AUM of ₹304 crores as of 2024-11-29.The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 097.39% to debt and 2.61% to other assets.
7. Bandhan Floating Rate Fund Direct (G)
Bandhan Floating Rate Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 8.4% and a 3 Years return of 6.5%. The fund has an expense ratio of 0.3% and an AUM of ₹330 crores as of 2024-11-29. It was Launched on 2021-02-18. The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 094.60% to debt and 5.40% to other assets.
8. Tata Floating Rate Fund Direct (G)
Tata Floating Rate Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 8.1% and a 3 Years return of 6.7%. The fund has an expense ratio of 0.3% and an AUM of ₹146 crores as of 2024-11-29. It was Launched on 2021-07-07. The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 087.82% to debt and 12.18% to other assets.
9. SBI Floating Rate Debt Fund Direct (G)
SBI Floating Rate Debt Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 8.5% and a 3 Years return of 6.7%. The fund has an expense ratio of 0.3% and an AUM of ₹1170 crores as of 2024-11-29. It was Launched on 2020-10-27. The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 091.64% to debt and 8.36% to other assets.
10. DSP Floater Fund Direct (G)
DSP Floater Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 9.6% and a 3 Years return of 6.6%. The fund has an expense ratio of 0.2% and an AUM of ₹727 crores as of 2024-11-29. It was Launched on 2021-03-19. The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 098.68% to debt and 1.32% to other assets.
Typically, an investor plan his mutual fund investments in equity mutual funds or debt-related instruments based on their risk tolerance levels. An investor with lower risk tolerance levels and short term goals prefers debt funds as they are much less volatile when compared to equity funds. Debt mutual fund investments have several categories like income funds, gilt funds, dynamic funds, floater funds and many more
Top 5 Floating Rate (Floater) Funds to Invest in 2024
Direct Plan
| Fund Name | 3 Year Returns | 5 Year Returns |
| HDFC Floating Rate Debt Fund Direct Plan Growth | 6.5% | 6.4% |
| Aditya Birla Sun Life Floating Rate Fund Direct Plan Growth | 6.6% | 6.7% |
| ICICI Prudential Floating Interest Fund Direct Plan Growth | 6.4% | 6.7% |
| Nippon India Floating Rate Fund Direct Plan Growth | 6.2% | 6.8% |
| UTI Floater Fund Direct Plan Growth | 6.1% | 6.8% |
Regular Plan
| Fund Name | 3 Year Returns | 5 Year Returns |
| Aditya Birla Sun Life Floating Rate Fund Regular Plan Growth | 6.5% | 6.4% |
| HDFC Floating Rate Debt Plan Regular Plan Growth | 6.6% | 6.7% |
| ICICI Prudential Floating Interest Fund Regular Plan Growth | 6.4% | 6.7% |
| Nippon India Floating Rate Fund Regular Plan Growth | 6.2% | 6.8% |
| Kotak Floating Rate Fund Regular Plan Growth | 6.1% | 6.8% |
What are Floater Funds?
A floating rate debt fund is a fund that invests more than 65% of its total assets in floating rate instruments. A floating rate instrument can be corporate bonds and debt instruments or loans from companies that have variable or floating interest rates. In other words, the floater funds do not have a fixed coupon rate.
Fluctuating interest rates in the market primarily determine the rate of interest of floating funds. Any change in the repo rate by the Reserve bank of India (RBI), affects the return of any debt instrument. Every floating rate instrument has a specific benchmark. However, the interest rate of these financial instruments changes in accordance with a change in the benchmark rate.
As the market lending repo rate increases, the interest rate of these floater funds also increases. This change can be seen in NAV units of these funds. Thus, this allows higher returns to the investor.
Therefore, these funds aim to benefit from the fluctuating interest rate situation. One can choose to invest in these funds when the interest rates are rising in the country. The taxation for these funds is similar to debt mutual funds.
Types of Floater Funds
- Short-term Floater Funds: These funds primarily invest in short duration debt instruments. For instance, T-bills, certificate of deposits, government securities, etc. These instruments have short duration maturity and are highly liquid in nature.
- Long-term Floater Funds: These funds invest in long term debt securities. These instruments have a long term maturity period. The portfolio of these funds majorly consists of floating rate debt instruments. The remaining part of the portfolio is either invested in money market instruments or fixed-rate securities.
How do floater funds work?
In comparison to bonds like corporate bonds which have a fixed coupon rate, floater fund securities have variable or fluctuating interest rate. Every floating rate instrument has a specific benchmark. The interest rate of a benchmark fluctuates. Subsequently, the interest rate of the floating instrument also fluctuates as per the benchmark.
Generally, one can observe that, as interest rates increase in the debt market, the interest rate of floating instruments rises too. In other words, as the repo rate increases, the market lending rate also increases. This affects the return of all the market-linked debt instruments.
As the floater fund consists of these instruments, they yield a higher return to investors. Thus, investors switch to floating rate funds when the interest rates are rising in the country. The fixed income rate funds lag in such cases. Hence, These funds offer better returns in comparison to fixed-income rate funds.
Features of Floater Funds
A diversified portfolio of debt securities
The diversification of a portfolio is essential in the long term. The portfolio of consists of both floating rate instruments and fixed-income securities. However, 65% of their primary assets are invested in floating rate securities. These instruments yield better returns during rising interest rate movement. The remaining part of the fund consists of fixed-income securities.
Low Risk
Floater funds are for lower risk tolerance investors. Comparatively, the floater fund is a safer investment option. However, there is credit risk involved in any debt instruments, including floater funds. The risk occurs when the bond defaults its payment dues. One can choose to invest in securities that have a high credit quality or rating where the risk of default is minimal.
Returns
In comparison with other fixed-income instruments, bank deposits, bonds, etc. floater funds yield better returns in the long run. These funds have low volatility when compared to short term debt funds. One can leverage the benefit in it during rising interest rates in the economy. This opportunity can yield better returns, although it is not justified with higher interest rate risk.
Taxation
The taxation is as per the usual for debt mutual funds. The debt mutual fund has two types of tax, i.e. short term capital gains and long term capital gains.
If the holding period of the fund is less than three years, it is called short term capital gains. The capital gains tax will be levied as per the investor’s income tax slab rates.
If the holding period of the fund is more than three years, it is called long term capital gains. The capital gains tax liability will be 20% with indexation benefit or 10% without indexation.
However, from April 1st 2023, as per the Finance Bill 2023, capital gains from debt mutual funds will be taxable as per the investor’s income tax slab rate, irrespective of the holding period.
Open-ended Debt Scheme
In an open-ended fund, the investor can enter or exit the fund anytime after the (New Fund Offer) NFO. The investor can decide the entry and exit based on his needs, financial goals and investment purpose. The investment can be in the mode of SIP investment or Lump-sum. However, one can invest only in lump sum in these funds and not SIP investment.
Who should invest in floater funds?
A floater debt fund is highly sensitive towards interest rates. It moves in proportion to the current benchmark rate. The return from these funds is based on market conditions. RBI adjusts the repo rate based on the economic situation of the country. In case the interest rates fall in the country, the floater fund can deliver lower returns when compared to other fixed-income funds.
This fund can be an additional option for investors for fixed income investments. These funds come with credit risk attached with them as there can be default in payment of the underlying security. Also, it is essential to analyse and predict the market economy while making a decision. Further, an investor should also be able to tune his investment to the financial goal in the predicted market conditions. An investor whose financial goals matches with the fund should invest in floater funds.
Difference between floater funds and money market funds
Both floater funds and money market funds fall under the category of debt mutual fund scheme. However, there are some differences between these funds.
- A floating fund invests at least 65% of its corpus in floating rate instruments and some in fixed income securities. Comparatively, liquid funds invest in very short term maturity instruments like commercial papers, t-bills, etc. These instruments are held for a fixed time period up to their maturity.
- Usually, the redemption of any debt fund or equity mutual funds take T+3 days. Only for liquid funds, the redemption time is T+1 day.
- Floater funds are suitable for the medium duration for investment up to a few years. Liquid fund is ideal for the duration of a few days or a few months.
- The returns are lower in liquid funds in comparison to floating rate funds as investments are for the short term.
- A liquid fund can invest in short term instruments, whereas a floater fund can invest in both short and long term instruments.
- With an interest rate rise in the economy, floating rate funds will rise immediately because of adjusting coupon rates. However, in the case of liquid funds, the return will not increase immediately as the coupon rate is fixed.
Limitations of floater funds
Investors with a low-risk tolerance level might find floater funds attractive, especially those who are looking for investment options and other equity schemes. Nevertheless, there are certain limitations associated with these funds. Every individual must be aware of these before investing.
The return on investment is majorly dependent on the current interest rate scenario in the economy. Any change in the repo rate by RBI, it affects the rate of bonds, government securities and other debt instruments. RBI decides the change in repo rate based on the current market condition. An increase in repo rate means an increase in the rate of these debt instruments, consequently increasing the yield of the floater fund. However, the returns floater funds cannot be anticipated in advance. Therefore, the risk associated with the interest rate for floating rate instruments is uncertain.
Investors who are willing to opt for floater funds must ensure their ability to understand and accept this risk. In comparison to equity funds, they are less volatile, but there is a credit risk associated with it. One should be thoughtful while choosing funds considering the credit quality risk.
Conclusion
Floater Funds are mandated to invest a minimum of 65% of total assets in Floating Rate Instruments. This is a relatively small category with a limited number of funds. We do not recommend funds in this category since we believe that the potential incremental return is not justified by the higher interest rate risk.
Frequently Asked Questions
Floater funds are a good investment option. An investor whose financial goals matches with the fund should invest in floater funds. A floater debt fund is highly sensitive towards interest rates. It moves in proportion to the current benchmark rate. The return from these funds is based on market conditions. Floater Funds are mandated to invest a minimum of 65% of total assets in Floating Rate Instruments. This is a relatively small category with a limited number of funds. Hence, the potential incremental return is not justified by the higher interest rate risk. Furthermore, an investor must consider the risk and reward ratio before opting for an investment in a floater fund.
In comparison to bonds like corporate bonds which have a fixed coupon rate, floater fund securities have variable or fluctuating interest rate. Every floating rate instrument has a specific benchmark. The interest rate of a benchmark fluctuates. Subsequently, the interest rate of the floating instrument also fluctuates as per the benchmark. Generally, one can observe that, as interest rates increase in the debt market, the interest rate of floating instruments rises too. In other words, as the repo rate increases, the market lending rate also increases. This affects the return of all the market-linked debt instruments. As the floater fund consists of these instruments, they yield a higher return to investors. Thus, investors switch to floating rate funds when the interest rates are rising in the country. The fixed income rate funds lag in such cases. Hence, These funds offer better returns in comparison to fixed-income rate funds.
The taxation is as per the usual for debt mutual funds. The debt mutual fund has two types of tax, i.e. short term capital gains and long term capital gains. If the holding period of the fund is less than three years, it is called short term capital gains. The capital gains tax will be levied as per the investor’s income tax slab rates. If the holding period of the fund is more than three years, it is called long term capital gains. The capital gains tax liability will be 20% with indexation benefit or 10% without indexation. However, from April 1st 2023, as per the Finance Bill 2023, capital gains from debt mutual funds will be taxable as per the investor’s income tax slab rate, irrespective of the holding period.
Floating interest is a variable that is influenced by many factors. It is calculated based on a long analytical process that takes into consideration all the factors and other variables such as the repo rate, local and global interest rates, monetary policies. Every floating rate instrument has a specific benchmark. The interest rate of a benchmark fluctuates. Subsequently, the interest rate of the floating instrument also fluctuates as per the benchmark.
Prepayment risk is more susceptible to happen with loans in case the borrower decides to prematurely repay for lender the full amount. However floating funds are pre-determined as long-term or short-term based on the type of investment whether T-bills, certificate of deposits, government securities, or debt securities.
As the name suggests, floating interest rate means an interest rate that is not fixed and subject to fluctuations in the market. The interest rate depends on the base rate. A change in the base rate leads to the change in the interest rate.
Fixed interest is pre-determined before starting an investment or applying for a loan. This excludes the risk of any change in the interest whether by increase or depreciation. On the other hand, floating interests are subject to change according to a specific benchmark. Although it can be less than fixed interest, it carries the risk of changing during the investment or loan settlement.