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Axis Floater Fund: A Good Debt Fund Option For Those Looking To Park Surplus For Short Term


The NFO is the most suitable way to apply for the newly launched mutual fund and is similar to an IPO of a company that is making its way to the Indian exchanges. Usually, for the NFO, the offer price is fixed at Rs. 10 while after the period expires, investors need to apply for the mutual fund at the fund's Net Asset value.


Now before we get into the specific details of this newly launched Axis Floater Fund, we will understand what the floater fund is.

Axis Floater Fund NFO Opens Today: Should You Invest?

Floater funds:

Floater funds are typically debt funds provided with a mandate to invest 65% of their corpus in floating rate bonds. Interest rate on these bonds changes with the interest rates in the economy. These bonds are typically suitable for investors looking for securities or investment options that do not erode their primary capital. Prices of fixed rate bonds have an inverse relationship with changes in interest rates - as interest rates rise, prices of bonds fall and vice versa.

How floater funds generate return for investors?

Floater funds with their corpus into fluctuating interest bearing debt securities do not play with the investors' capital, instead provide return depending on the floater bond securities rate. So, as and when there are changes by the RBI in its key policy rate, they may get a lower or higher rate accordingly.

This floater fund has been unveiled at a time when

1. Economy is recovering from the second Covid wave at a relatively better rate:

• There is reported a pick -up in high frequency data
• Pent up demand is restoring normalcy at the demand front in the country.
• Q4 FY 21 GDP numbers also highlight latent growth attributes as a direct after effect of the 1st wave. Same attributes likely to show up in Q1 FY 22 GDP figures. And as restrictions are being withdrawn we are at the cusp of a fresh economic cycle.

2. At the bottom of the interest rate cycle:

With inflation rising, the centre is left with no scope to cut rates further and in all likelihood rates will only move northwards. This is even as the system liquidity remains at all time high.

3. Yields have started to rise where they were most hurt:

Across Government securities (G-securities) and credit curves there is seen normalization of the yield curve and the hike is more pronounced where the rates were cut the most. This is to an extent aided by RBI's various intervening measures.

Axis floater fund NFO and its various features:

Axis floater fund NFO and its various features:

Axis Floater fund is an open ended scheme investing pre-dominantly in floating rate securities.

1. Floating rate fund

2. Fund manager is Mr. Aditya Pagaria

3. NFO opens- July 12, 2021

4. Minimum application is Rs. 5000 and in multiples of Rs. 1 thereafter

5. Primary investments: These funds invest in floating rate bonds and as these floating rate bonds adjust as per market interest rate on a periodic basis, the prices of these bonds do not follow the same price/yield relationship. There shall be no allocation to ‘A' rated instruments or below.

6. Investment horizon: The fund targets average maturity of between 6-18 months and hence a good bet for those looking to park surplus for short term. It targets a portfolio average maturity of 6-18 months. Minimum of 12-18 months.

Where will Axis floater fund invest?

Where will Axis floater fund invest?

To invest predominantly in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/derivatives). So, primarily the fund will look for 80% AAA/A1 holding along with 20% allocation to AA issuers.

Who should invests in Axis Floater funds?

Who should invests in Axis Floater funds?

Those investors who do not want to see their capital/ investment to be impacted and look to reduce their risk can diversify their portfolio by allocating some portion into floater funds for getting good return in the short run. Axis floater bond in particular offer a market linked return and are best for those looking to hedge interest rate risks in a rising rate environment.

The fund can also convert a fixed rate bond exposure into a market linked floating rate exposure thereby reducing any interest rate risk associated with the fixed rate instrument. This can be explained as per the example illustrated in the NFO prospectus:

Say: Fund says a fixed rate bond with a coupon of 5.25%. Then fund also contracts an investment bank for swapping the bond for a floating structure and the counterparty agrees to provide a MIBOR +3% payout structure for the swap in exchange for the fixed coupon of the bond.

It is to be noted that yield rate hike shall be sharper for 3-5 year segments as these tenures saw the most compression in the previous cycle. So, a gradual rate hike is in the offing over the medium term.

Return and other advantages of Axis floater fund

Return and other advantages of Axis floater fund

- Fund's investment into AA issuers currently offer yield at par with longer maturity AAA papers.

- Government's support to the credit market is making risk-reward better and attractive as fundamental macro economic factors reflect strong recovery.

- The scheme can also be invested for STPs in equity funds.

- Hence investors will get an opportunity to get a better risk reward option in comparison to traditional investments over the short term.



Past performance may or may not be sustained in the future. Sector(s)/ Stock(s)/ Issuer(s) mentioned above are for the purpose of disclosure of the portfolio of the Scheme(s) and should not be construed as recommendation. The fund manager(s) may or may not choose to hold the stock mentioned, from time to time. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s).

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