--- title: What is a Floater Fund? canonical_url: https://sanchaykaro.com/what-is-a-floater-fund/ last_updated: 2026-05-09T10:44:38+00:00 plugin_version: 1.2.1 --- # What is a Floater Fund? What is a Floater Fund? – Complete Simple Guide for Beginners -------------------------------------------------------------- Are you looking for a **debt mutual fund** that protects your money when **interest rates** go up? A **Floater Fund** could be the right choice for you. This blog explains **what is a Floater Fund** in very simple language. You will also learn how to invest easily using the **Sanchaay Karo app**. --- ### What is a Floater Fund? (Very Simple Definition) A **Floater Fund** (also called **Floating Rate Fund**) is a type of **debt mutual fund** that invests most of its money in **bonds** whose **interest rates** keep changing with the market. Think of it like this: A **fixed-rate bond** is like a **fixed salary**. No matter what happens in the economy, your salary remains the same. A **floating-rate bond** is like a **salary with a variable allowance** that goes up and down based on company profits. When the company does well, your salary increases. When it faces challenges, your salary decreases. According to **SEBI** rules, a **Floater Fund** must invest at least **65% of its total assets** in **floating rate instruments**. The remaining 35% can be in **fixed-rate bonds** that are converted into **floating-rate exposures** using **derivative tools** like **Interest Rate Swaps**. The **interest rates** on these **instruments** are periodically reset based on a **benchmark rate** such as the **RBI repo rate**, **MIBOR (Mumbai Interbank Offered Rate)** , or **T-bill yields**. This means when the **benchmark rate** changes, the **interest** you earn also changes. [[What is a Large Cap Fund?](https://sanchaykaro.com/what-is-a-large-cap-fund/)](https://sanchaykaro.com/what-is-a-large-cap-fund/)--- ### How Does a Floater Fund Work? (Step-by-Step) **Floater Funds** pool money from many **investors**. A professional **fund manager** then invests that money in **floating rate debt instruments** like **floating rate bonds**, **treasury bills**, and other **money market instruments**. Here is a simple step-by-step explanation: **Step 1: Understanding the Benchmark** The **fund** ties its **interest rate** to a **benchmark** like the **RBI repo rate**. The **repo rate** is the rate at which the **RBI** lends money to **banks**. When the **RBI** changes the **repo rate**, the **interest** on **floating rate bonds** also changes. **Step 2: Periodic Reset** The **interest rate** on **floating rate bonds** is reset at regular intervals (for example, every 3 months or 6 months) based on the current **benchmark rate**. **Step 3: Direct Correlation** When **interest rates** rise, the **returns** from **Floater Funds** also tend to rise. When **interest rates** fall, the **returns** may decrease. This is the opposite of **fixed-rate bonds**, which lose value when **interest rates** rise. **Step 4: Using Derivatives (If Needed)** Since India has a limited market for **floating-rate bonds**, many **Floater Funds** use **Interest Rate Swaps** to convert **fixed-rate bonds** into **floating-rate exposures**. A **swap** is an agreement between two parties to exchange **interest payments**. **Step 5: Income Generation** The **fund** earns **regular interest income** from these **instruments**. This income is passed on to you, the **investor**, as **returns**. --- ### Key Features of Floater Funds FeatureWhat It Means**SEBI Mandate of 65%**At least 65% of assets must be in **floating rate instruments****Open-ended**You can buy or sell units on any business day**Low Interest Rate Risk**Much less sensitive to **interest rate** changes than **fixed-rate bonds****Moderate Credit Risk**Most **Floater Funds** invest in **high-rated securities** (AAA) for safety**Short to Medium Maturity**Typically have **average maturity** of **2-3 years****Professional Management**Expert **fund managers** handle all decisions**Regular Interest Income**Provides a **steady income stream** through **coupon payments****No Lock-in Period**You are not forced to stay invested for a fixed period**Liquidity**You can **redeem** units on any business day--- ### Benefits of Investing in Floater Funds Here are the main benefits of adding a **Floater Fund** to your **mutual fund portfolio**: BenefitWhy It Matters**Protection Against Rising Interest Rates**This is the biggest benefit. When **interest rates** rise, **fixed-rate bonds** lose value. **Floater Funds** adjust and can offer higher **returns****Low Interest Rate Risk****Floater Funds** have very low **duration risk** compared to **fixed-rate bond funds**. They are relatively insulated from **price losses** when **interest rates** rise**Better Returns than Bank FDs**These **funds** typically offer **higher returns** than **bank fixed deposits**. The category has delivered **7.58% p.a.** over 3 years and **6.22% p.a.** over 5 years**Portfolio Diversification**Adding a **Floater Fund** to your **portfolio** reduces overall **risk** because they have a different **risk-return profile** than **equity funds** or **fixed-rate debt funds****High Liquidity**You can **redeem** your units on any business day, unlike **FDs** where you may pay a penalty**Professional Management**You do not need to time **interest rate** movements yourself; an expert **fund manager** does it for you**No Lock-in Period**You are not forced to stay invested for a fixed period**Suitable for Short to Medium Term**Perfect for **investment horizons** of **1 to 3 years****Note:** **Floater Funds** have on average delivered **7.1% p.a. returns** in the last 1 year. Many **Floater Funds** delivered close to **8%** in the last one year, making them one of the best-performing **debt fund** categories. --- ### Risks of Floater Funds (Must Read) No **mutual fund investment** is without risk. Here are the **risks of Floater Funds**: RiskExplanation**Interest Rate Decline Risk**If **interest rates** fall, the **returns** on **Floater Funds** can also decrease. This is the opposite of what happens when **rates** rise**Credit Risk****Floater Funds** invest in **debt instruments**, which come with **credit risk**. If the **issuer** of a **bond defaults**, it can affect the **fund's returns****Market Risk**Like all **mutual funds**, **Floater Funds** are subject to **market risk**. Economic changes, political events, and other factors can affect performance**Lower Returns in Stable Rate Environments**When **interest rates** are stable and not rising, **Floater Funds** might offer **lower returns** compared to **fixed-rate funds****Lower Returns than Equity**Over the long term, **equity funds** have historically given much higher **returns****Liquidity Risk**During a financial crisis, even good **bonds** may be hard to sell quickly**Note:** **Floating-rate exposure** can reduce **interest-rate risk**, but it does not remove **credit risk**, and **NAV** can still move due to **spread changes** and **portfolio positioning**. --- ### Who Should Invest in Floater Funds? (Ideal Investor Profile) **Floater Funds** are perfect for: - **Conservative investors** who want to minimise **interest rate risk** while still seeking decent **returns** - **Investors expecting interest rates to rise** – **Floater Funds** perform well when **rates** go up - **Investors with a short to medium-term horizon** of **1 to 3 years** - **Investors who do not want to take a call on interest rates** themselves and prefer to leave it to a professional **fund manager** - **Investors looking for better returns than bank FDs** but still want a **relatively safe option** - **Investors looking for debt allocation** in their long-term **portfolio** - **Investors who want to diversify** beyond traditional **debt funds** **Who should AVOID Floater Funds?** - **Aggressive investors** seeking **very high returns** (consider **equity funds** instead) - **Investors with a very long-term horizon** (over 5 years) – **equity funds** may be better - **Investors who need guaranteed returns** – **FDs** may be more suitable - **Investors who cannot tolerate any credit risk** --- ### Floater Fund vs Other Debt Fund Categories Many **investors** get confused between **Floater Funds** and other **debt fund** categories. Here is a simple comparison: Fund TypeWhat It Invests InInterest Rate RiskBest For**Floater Fund****Floating rate instruments** (65%+), tied to **benchmark rates**LowRising **interest rate** environment, 1-3 year horizon**Liquid Fund****Debt securities** with maturity up to 91 daysVery LowParking money for a few days or months**Ultra Short Duration Fund****Debt instruments** with duration of 3-6 monthsLow3-6 month horizon**Low Duration Fund****Debt instruments** with duration of 6-12 monthsLow to Moderate6-12 month horizon**Money Market Fund****Money market instruments** with maturity up to 1 yearLow to ModerateUp to 1 year horizon**Short Duration Fund****Debt instruments** with duration of 1-3 yearsModerate1-3 year horizon**Corporate Bond Fund****Corporate bonds** (AA+ and above)Moderate2-5 year horizon**Banking and PSU Fund****Banks**, **PSUs**, **PFIs**Low to Moderate1-3 year horizon**Gilt Fund****Government securities** onlyModerate to HighLong-term, risk-averse investors**Dynamic Bond Fund****Bonds** of varying **maturities**, actively managedModerate to High3-5 year horizon**Key difference:** Unlike other **debt funds** that are affected by **interest rate** changes, **Floater Funds** adjust their **interest payouts** when **rates** change, offering **protection** in a rising **rate** environment. --- ### Top Floater Funds in India (2026) Here are some of the **best Floater Funds** in India based on **3-year returns** (as of 2026): Fund NameAUM (₹ Crore)3-Year Return (%)Expense Ratio (Direct)Modified Duration (Years)Yield to Maturity (%)**DSP Floater Fund**406.857.76%0.27%——**Franklin India Floating Rate Fund**313.927.70%0.25%——**HDFC Floating Rate Debt Fund**16,766.067.69%0.35%——**ICICI Prudential Floating Interest Fund**7,438.587.65%0.35%1.547.43**SBI Floating Rate Debt Fund**693.297.62%0.30%——**Kotak Floating Rate Fund**3,455.997.62%0.40%2.597.36**Axis Floater Fund**152.687.53%0.30%——**Nippon India Floater Fund**8,380.807.48%0.35%2.207.00**Aditya Birla Sun Life Floating Rate Fund**13,461.927.45%0.31%1.447.46**Tata Floating Rate Fund**139.907.21%0.40%1.227.36*Data sources: Rupeezy, ET Money, Moneycontrol* **Note:** The **HDFC Floating Rate Debt Fund** is the largest **Floater Fund** in India with an **AUM** of over **₹16,766 crore**. The **ICICI Prudential Floating Interest Fund** has a **modified duration** of **1.54 years**, indicating low **interest rate sensitivity**. *Disclaimer: Past performance does not guarantee future returns. Please consult your **financial advisor** before investing.* --- ### Taxation on Floater Funds (Simple Rules for FY 2026-27) **Floater Funds** are treated as **debt mutual funds** for **taxation** purposes. The tax rules changed significantly from **April 1, 2023**. Purchase DateHolding PeriodTax Treatment**On or after April 1, 2023**Any period**Gains added to your income** and taxed as per your **income tax slab rate** (no **indexation** benefit)**Before April 1, 2023**Less than 3 years**STCG** added to your **income** and taxed as per your **slab rate****Before April 1, 2023**3 years or more**LTCG** taxed at **20% after indexation** benefit**Key tax rules for FY 2026-27:** - **Debt mutual funds** purchased **after April 1, 2023** are taxed at **slab rates** regardless of the **holding period**, reducing their **tax efficiency** for long-term **investors** - **Dividends** (IDCW) are added to your **income** and taxed as per your **slab rate** - The **fund house** deducts **10% TDS** under Section 194K if your **dividend** exceeds **₹5,000** in a financial year **Important:** The **Association of Mutual Funds of India (AMFI)** has requested the government to restore **long-term indexation benefit** for **debt schemes** held for more than 36 months in the upcoming **Budget 2026**. If approved, this would make **Floater Funds** more **tax-efficient** for long-term **investors**. --- ### How to Invest in Floater Funds Using Sanchaay Karo App Now that you understand what a **Floater Fund** is, the next step is **investing**. The easiest way is through the **Sanchaay Karo app**. **Sanchaay Karo** is a simple, trusted, and **SEBI-registered** mutual fund investment platform. It helps you invest in **top Floater Funds** and hundreds of other funds with just a few taps. #### Why Choose Sanchaay Karo App for Floater Fund Investment? - **Smart Goal-Based Investing**: Tell the app your goal (retirement, child's education, buying a house). It suggests the right **Floater Fund** based on your **risk profile** and **investment horizon** - **Simple Dashboard**: See all your investments in one place – no confusion or clutter. Track **NAV**, **returns**, and **portfolio** in real time - **Quick KYC**: Complete your **KYC online** using Aadhaar and PAN in just 5 minutes. **Paperless KYC** is fully supported - **Start SIP from ₹500**: You don't need a lot of money. Start small with a **Systematic Investment Plan (SIP)** . You can do **monthly SIP**, **weekly SIP**, or **daily SIP** - **Track Performance**: Get regular updates on how your **Floater Fund** is performing against its **benchmark** (like Nifty Short Duration Debt Index) - **No Hidden Charges**: Transparent and low-cost. You can choose between **regular plan** and **direct plan** options. **Direct plans** have lower **expense ratios** - **Stay On Track**: Get timely reminders so your **SIPs** never stop - **Access to All AMCs**: Invest in **HDFC Floating Rate Debt Fund**, **ICICI Prudential Floating Interest Fund**, **Nippon India Floater Fund**, **Kotak Floating Rate Fund**, **Aditya Birla Sun Life Floating Rate Fund**, **SBI Floating Rate Debt Fund**, **DSP Floater Fund**, and many more #### Steps to Invest in Floater Funds (Very Easy) 1. **Download** the **Sanchaay Karo app** from Google Play Store or Apple App Store 2. **Sign up** using your mobile number and email 3. **Complete KYC** – upload **PAN card** and Aadhaar (fully paperless). You can also do **video KYC** if needed 4. **Search** for "Floater Fund" or "Floating Rate Fund" or let the app recommend one based on your **financial goals** 5. **Compare** different **Floater Funds** based on **returns**, **expense ratio**, **exit load**, **modified duration**, **yield to maturity (YTM)** , and **fund manager** track record 6. **Choose** between **lumpsum** (one-time) or **monthly SIP** investment. For **Floater Funds**, **SIP** is recommended to reduce **timing risk** 7. **Pay** using **UPI**, net banking, or debit card 8. **Done!** Your investment starts growing. You will receive regular statements 👉 **\[Click Here to Download Sanchaay Karo App Now\]** () --- ### Important Tips Before Investing in Floater Funds Before you invest in a **Floater Fund**, keep these points in mind: 1. **Understand the Interest Rate Environment**: **Floater Funds** perform best when **interest rates** are rising or expected to rise. In a falling **rate** environment, other **debt funds** may perform better. 2. **Check Modified Duration**: **Modified duration** shows how sensitive the **fund** is to **interest rate changes**. Lower **duration** means more stability. Most **Floater Funds** have a **modified duration** of **1.5 to 2.5 years**. 3. **Check Yield to Maturity (YTM)** : **YTM** indicates the **portfolio's** current **income potential**. Higher **YTM** means higher expected **returns**, but also potentially higher **risk**. Most **Floater Funds** have a **YTM** of **7.0% to 7.5%**. 4. **Check Credit Quality**: Ensure the **fund** invests primarily in **high-rated securities** (AAA) for lower **credit risk**. The **Nippon India Floater Fund**, for example, has 61% in **AAA-rated** instruments. 5. **Check Exit Load**: Many **Floater Funds** have **nil exit load**. Some may charge a small **exit load** (0.5–1%) if redeemed within 30–90 days. Always check before investing. 6. **Compare Expense Ratios**: **Direct plans** have much lower **expense ratios** (often 0.25–0.40%) than **regular plans** (often 0.70–1.00%). Over time, this difference matters. 7. **Use SIP for Disciplined Investing**: A **Systematic Investment Plan (SIP)** helps you invest regularly without worrying about **market timing**. 8. **Avoid for Long-Term Wealth Creation**: **Floater Funds** are not suitable for **long-term wealth creation** (over 5 years). **Equity funds** have historically given much higher **returns** over the long term. 9. **Understand the Investment Horizon**: These **funds** are best for **1 to 3 years**. Do not invest for less than 1 year, as **interest rate** movements can impact your **returns** in the **short term**. 10. **Do Not Chase Past Returns**: A **fund** that performed well last year may not repeat it. Look for consistency over 3–5 years. --- ### Frequently Asked Questions (FAQs) About Floater Funds **Q1: Are Floater Funds safe?** A: **Floater Funds** are considered **low to moderate risk** among **debt mutual funds**. They have **low interest rate risk** but carry some **credit risk**. They are much safer than **equity funds** but may be slightly riskier than **liquid funds**. **Q2: Can I lose money in Floater Funds?** A: Yes, you can lose money in the **short term**, especially if there is a **credit event** (default) or if **interest rates** move unexpectedly. However, the chance of **loss** is much lower than **equity funds**. **Q3: What is the minimum SIP amount for Floater Funds?** A: Most **Floater Funds** allow **SIP** starting from **₹500** per month. Through the **Sanchaay Karo app**, you can start with as little as **₹500**. **Q4: How much returns can I expect from Floater Funds?** A: Historically, **Floater Funds** have delivered **7% to 8% annual returns** over 3-year periods. The category average for 3-year **returns** is around **7.58%**. **Q5: What is the difference between Floater Funds and Liquid Funds?** A: **Liquid funds** invest in **debt securities** with maturity up to 91 days and are very safe. **Floater Funds** invest in **floating rate instruments** with longer **maturities** (2-3 years) and offer higher **returns** but with slightly more **risk**. **Q6: How are Floater Funds taxed?** A: For units purchased **after April 1, 2023**, all **gains** are added to your **income** and taxed as per your **income tax slab rate**, regardless of the **holding period**. **Q7: Can NRIs invest in Floater Funds?** A: Yes, **NRIs** can invest in **Floater Funds** through **Sanchaay Karo app** using their NRE/NRO account. **Q8: What is the expense ratio of Floater Funds?** A: **Expense ratios** for **direct plans** typically range from **0.25% to 0.40%**. **Regular plans** have higher **expense ratios** (often 0.70–1.00%). For example, the **Franklin India Floating Rate Fund** has an **expense ratio** of **0.25%** for the **direct plan**. **Q9: What is the exit load for Floater Funds?** A: Many **Floater Funds** have **nil exit load**. Some may charge a small **exit load** (0.5–1%) if redeemed within 30–90 days. Always check the **Scheme Information Document (SID)** before investing. **Q10: Are Floater Funds good for beginners?** A: **Floater Funds** can be suitable for **beginners** who want to start with **low-risk debt funds** and expect **interest rates** to rise. However, it is recommended to start with **liquid funds** or **ultra short duration funds** first to understand **debt fund** basics. --- ### Final Words – Should You Invest in a Floater Fund? **Yes**, if you: - Are a **conservative investor** seeking **low to moderate risk** options - Expect **interest rates** to rise in the near future - Have an **investment horizon** of **1 to 3 years** - Want **better returns** than **bank fixed deposits** - Already have **equity funds** in your **portfolio** and want to add **debt allocation** - Are looking for **regular income** with **high liquidity** - Want to **diversify** your **portfolio** and reduce **interest rate risk** **No**, if you: - Are an **aggressive investor** seeking **very high returns** - Have a **very long-term horizon** (over 5 years) – **equity funds** are better - Need **guaranteed returns** – **FDs** may be more suitable - Cannot tolerate any **credit risk** - Expect **interest rates** to fall significantly **Floater Funds** offer an excellent **balance** of **safety**, **returns**, and **liquidity** – especially in a rising **interest rate** environment. They are among the best **debt fund** choices for **conservative investors** and those looking for **short to medium-term** goals. The golden rule for **Floater Fund** investing: **Understand the interest rate environment, check the fund's modified duration and credit quality, compare expense ratios, and use SIP for disciplined investing.** Start your **investment journey** today with the **Sanchaay Karo app**. 👉 **\[Click Here to Download Sanchaay Karo App Now\]** () --- **Disclaimer:** This blog is for **educational purposes** only. **Mutual fund investments** are subject to **market risks**. **Floater Funds** carry **interest rate risk** and **credit risk**. Please read all **scheme related documents** carefully, including the **Scheme Information Document (SID)** and **Statement of Additional Information (SAI)** , and consult your **financial advisor** before investing. **Past performance** does not guarantee **future returns**. The **Sanchaay Karo app** is a platform for mutual fund investments; all investments are subject to **market risk**.