Why is there increasing investor interest in floating rate mutual funds?

Unlike other category of debt mutual funds, floating rate funds benefit from rising interest rates. These funds seek to generate returns by creating a portfolio that is primarily invested in floating rate instruments, including floating returns and fixed rate instruments swapped for other debt and money market instruments.

Lakshmi Iyer, Chief Investment Officer (Loan) and Head Products, Kotak Mahindra AMC, said: “In the month of August, around Rs. Fixed income saw a steady inflow into the floating rate category with net sales of Rs. 10,000 crores. Anticipation of tighter liquidity conditions due to RBI’s announcement of additional VRRR could have prompted the move. Categories like medium to long term, gilts etc also witnessed positive net sales as the sharp yield curve provides a cushion for any possible sudden rise in rates.”