Floating-rate funds: Market experts call for wait-and-watch approach

Investors should take the change of stance as a cue to exit

Floater funds (direct plans) have fetched investors a category average return of 7.8 per cent over the past year. Basing investment decisions solely on past performance could prove counter-productive in this category.

How do they work?  

The Securities and Exchange Board of India (Sebi) guidelines mandate that floater funds must invest a minimum of 65 per cent of total assets in floating-rate instruments. These could be natural or synthetic.

“Natural instruments include those linked to a floating-rate benchmark, such as treasury bills (T-bills), bank MCLR (marginal cost of funds based lending rate), MIBOR (Mumbai interbank offered rate),” says Kaustubh