Introduction
If you have been following the financial markets, you know that interest rates can swing like a pendulum, impacting everything from your home loan EMIs to your fixed deposit returns. In this volatile environment, one investment option that’s gaining traction is floater mutual funds.
These funds are designed to thrive in rising interest rate scenarios by investing in debt instruments with variable interest rates. Simply put, when rates go up, so do your returns. Let’s explore some of the best floater mutual funds that could add value to your portfolio in 2025.
What Are Floater Mutual Funds?
Before diving into the specifics, here’s a quick primer. Floater mutual funds invest primarily in debt and money market instruments where the interest rates are linked to a benchmark, like MIBOR (Mumbai Inter-Bank Offer Rate). Unlike fixed-rate instruments, these adjust to changes in the interest rate, offering a potential cushion against rising rates.
Top Six Floater Mutual Funds for 2025
1. ICICI Prudential Floating Interest Fund Direct Plan-Growth
As of 16th January 2025, this fund manages assets worth ₹7,776 Cr, positioning it as a medium-sized fund in its category. Being a moderate-risk option, the fund has a life CAGR of 8.66% and a 3-year CAGR of 7.45%. Additionally, its 1-year return stands at an impressive 8.66%.
Why it stands out:
● Managed by one of India’s most trusted fund houses.
● Offers competitive returns in a rising rate environment.
● Ideal for investors seeking low-volatility, steady income.
2. Kotak Floating Rate Fund Direct-Growth
This fund has ₹3,577 Cr in assets under management (AUM) as of 16th January 2025. It has an expense ratio of 0.25% and offers a life CAGR of 7.15% and a 3-year CAGR of 6.76%. Additionally, its 1-year return is 8.52%.
Why it’s worth considering:
● Focuses on long-term stability with floating-rate bonds.
● Reliable performance history.
● A solid option for investors with a stable income in mind.
3. Nippon India Floating Rate Fund
As of 16th January 2025, this fund manages ₹7,580 Cr in assets, positioning it as a medium-sized fund in its category. The fund carries an expense ratio of 0.31% and offers a life CAGR of 7.93%, a 3-year CAGR of 6.7%, and a 1-year return of 8.34%.
What makes it click:
● Competitive management fees.
● Strong risk management practices.
● Tailored for retail investors seeking stability and growth.
4. HDFC Floating Rate Debt Fund
With ₹14,929 Cr in assets as of 16th January 2025, this fund is as a large-sized player in its category. It has an expense ratio of 0.26% and offers a life CAGR of 7.86%, a 3-year CAGR of 7.09%, and a 1-year return of 8.41%.
Why it’s a good pick:
● A robust track record in debt fund management.
● Well-diversified portfolio to reduce risk.
● A dependable choice for risk-averse investors.
5. Aditya Birla Sun Life Floating Rate Fund
With ₹13,287 Cr in AUM as of 16th January 2025, this fund falls into the large-sized category. It has an expense ratio of 0.23%, a life CAGR of 7.96%, a 3-year CAGR of 6.98%, and a 1-year return of 8.07%.
Why it should be in your portfolio:
● Competitive expense ratio.
● Consistent performance over the years.
● Perfect for investors seeking stability and moderate growth.
6. SBI Floating Rate Debt Fund
Launched on 6th October 2020, this fund has ₹1,293 Cr in AUM as of 16th January 2025. It carries an expense ratio of 0.26%, with a 3-year CAGR of 6.91% and a 1-year return of 8.24%.
Why it’s a favourite:
● Backed by one of India’s largest financial institutions.
● Offers low credit risk with a diversified portfolio.
● Tailored for those seeking consistent returns.
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Why Should You Consider Floater Funds in 2025?
With global and domestic markets navigating uncertain interest rate trends, floater mutual funds are a smart way to reduce risk while still earning competitive returns. These funds are particularly appealing if you want to safeguard your portfolio from interest rate volatility.
Conclusion
Choosing the right floater mutual fund is not a one-size-fits-all decision. It depends on your unique financial goals, risk tolerance, and investment timeline. It is wise to take a moment to think about your comfort level with interest rate fluctuations. While floater funds are built to do well in a rising interest rate environment, they can still come with some volatility.
The key is to focus on your objectives - whether it is capital preservation, steady income, or moderate growth - and match them with a fund that fits those needs. Also, consider factors like expense ratio, fund size, and past performance, but do not make those the only criteria. A good fund advisor can help guide you through this process and ensure you make the best decision for your financial future.
Remember, investing isn’t about chasing trends - it’s about aligning with your goals. For expert guidance in building your portfolio, trust Motilal Oswal as your preferred wealth management partner.
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