Floating Rate Funds

Floating rate fundsFloating rate funds (or floaters as they are called) are just as critical in an uncertain interest rate scenario. These funds invest in floating rate debt instruments wherein the coupon rate is revised at regular intervals. Uncertainty in interest rates does not significantly impact the prices of floating rate instruments, because the coupon rate is adjusted (either lower or higher depending on the interest rate scenario) in response to the market rates. Again, given that portfolios of floaters are largely comparable, lower expenses are crucial in clocking a competitive return. While floaters come in both variants (short-term and long-term), opt for short-term floaters, which allow investors to redeem any time without paying an exit load (long-term floaters usually have an exit load on premature redemptions).