There is no stopping the SIP inflow and as per the latest mutual fund data revealed by the AMFI a total of Rs. 10000 crore has made its way into mutual fund SIPs in the month of August too owing to massive lap up of NFOs and anticipation of equities bull run even ahead. Nonetheless what is noteworthy here is that investors are just not going for equity funds but also adding debt funds in order to balance their overall portfolio.
Among, the debt fund that mobilised the most funds during the last month and is infact seeing huge money coming is floater fund category. So, here we will discuss in brief about the fund and 3 such funds that have given the best 5-year returns.
What are floater funds?
These funds work with the objective to invest a minimum of 65% corpus into floating rate bonds of corporate, state and central government offering floating interest rate that is pegged to MIBOR. Pertinently, what is important is these funds function or give the best returns at a time when the interest rate in the economy are set to rise. So, in the context that sooner or later we may see interest rate in Indian economy going up, being pushed by inflation or such other factor, there has been seen huge traction in the category.
The floating rate bond typically reset their yields based on the prevailing interest rate and hence result in gains for investors in them.
Features of Floating rate bonds
- Investment across AAA rated corporate bonds, soveriegn bonds, money market instruments and interest rate swaps.
- Less volatile indicated by low standard deviaiton
- There is also credit and interest rate risk associated with floating rate bonds.
- Now even if the interest rate continue to be lower for some more time, the floater rate bonds that typically have a duration of around 2 years are suggested to be less negatively impacted because of floating rate component as well as Overnight index swaps positions.
1. ICICI Prudential Floating Interest Fund-Direct Plan-Growth:
The fund invests predominantly in floater bonds and look to balance yield, liquidity and safety concerns of investors. Launched in the year 2013, the fund since inception has delivered a return of 8.85%. Benchmark for the fund is
CRISIL Low Duration Debt. AUM under the scheme as on August 31 total to Rs. 13,631 crore, while the expense ratio of the fund is 0.58%.
Top holdings of the fund include GOI floating rate bond with maturity in 2023, 6.51% GOI 2024, Embassy Office Parks REIT 2022 etc.
SIP in the fund can be initiated for Rs. 100 and in the last 5 years, Rs, 10000 monthly SIP, implying a total investment of Rs. 6 lakh is worth Rs. 7.36 lakh.
2. Nippon India Floating Rate Fund - Direct Plan - Growth
This is a CRISIL 3-star rated fund and commands a good 20% fund into the category of Rs.18784 crore. Expense ratio of the fund is 0.24 percent. NAV of the fund as on September 8 is 37.08. Benchmark for the fund is CRISIL Short term bond index.
Investors with a time horizon of 3 years and more and aiming to garner moderate returns can lap up such funds.
SIP in the fund can be started for Rs. 100, while for lump sum investment the amount needed is Rs. 5000.
3. HDFC Floating Rate Debt Fund - Direct Plan - Growth:
This is again a CRISIL 3-star rated fund that can be opted by investors who have a longer investment horizon but do not wish to deploy their funds into equity funds can rope in this fund. The fund in existence since 2013 has provided return to the tune of 8.34%. The benchmark of the fund is CRISIL Liquid fund index. The fund as on August 31, 2021 commands a sizeable Rs. 22077 crore corpus with expense ratio of 0.23%.
Top holdings of the fund are GOI funds, CD, T-Bills, NCD and bonds etc. SIP in the fund can be initiated for Rs. 500, while for lump sum you need to park a minimum of Rs. 5000.
Top Floater Funds SIP You Can Invest In For Your Debt Portfolio
|Floater fund||Annualised return in the last 5 year||SIP Annualised return||Rs. 10000 monthly SIP in las5 5 years|
|ICICI Prudential Floating Interest Fund-Direct Plan-Growth||8.27%||8.32%||Rs. 7.36 lakh|
|Nippon India Floating Rate Fund - Direct Plan - Growth|
|7.96%||8.27%||Rs. 7.36 lakh|
|HDFC Floating Rate Debt Fund - Direct Plan - Growth||7.7%||7.7%||Rs. 7.25 lakh|
|Floater rate fund||Time of redemption||Taxation rate|
|Sold after 3 years||Gains taxed at 20% after indexation benefit|
|Sold before 3 years||Gains added to person's income and taxed as per his slab rate|
For dividend income, the addition is made to the investors' income and taxed as per his or her slab rate. In a case when the dividend income is over Rs. 5000 in a FY then fund house also deducts 10% TDS before dividend pay-out.
Mutual funds are subject to market risk. The above story is just for informational use, for apt decision with your investments please seek professional advice.