Floater Mutual Funds

A floater fund is a debt fund that must keep at least 65% of its assets in floating-rate instruments. A mutual fund pools many people's money, which a professional manager invests under the rules of SEBI, the markets regulator. A debt fund lends it by buying bonds and similar paper from governments, banks and companies.

SEBI renamed these categories in February 2026, and fund houses had until 26 August 2026 to rename their schemes. This one is now the Floating Interest Rates Fund.

SEBI's rule asks for a "Minimum investment in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/derivatives)- 65% of total assets". In plain words: at least 65% in floating-rate debt, and fixed-rate bonds count once swapped, as the next section explains.

A floating-rate bond's interest is not fixed. It is reset at set intervals, say every six months, in line with a benchmark rate such as a Treasury bill yield. The benchmark is the outside rate the interest is tied to at each reset.

SEBI defines this category by the kind of interest its bonds pay, not by who borrows or for how long. No other debt category is set that way.

Three more rules apply:

• Cash-like floor. At least 10% must sit in cash, government securities, Treasury bills or short loans backed by them. So SEBI measures the 65% on the other 90%: in practice, at least 58.5% of the whole fund.
• Sector cap. At most 20% may go to one sector, with government securities and a few others exempt.
• No rating floor. SEBI sets no minimum credit rating for this category. The fund's PRC cell, explained below, shows the most credit risk it may take.

A credit rating is one agency's opinion on how likely a borrower is to pay back in full and on time. AAA sits highest, and the opinion can change.

Through a swap. A fixed-rate bond counts once the fund has converted it to floating-rate exposure with swaps or other derivatives, which SEBI expressly allows.

A derivative is a contract whose value depends on something else, here an interest rate. An interest rate swap is a contract in which two sides swap interest payments, for example fixed for floating, on an agreed amount. SEBI lets mutual funds use them only to reduce risk, not to bet on rates.

Say a fund owns a bond paying a fixed rate. It signs a swap to pay fixed and receive floating. The bond stays, but the interest the fund keeps now floats.

SEBI's limits on this:

• plain swaps only, and only for hedging, meaning reducing a risk the fund already has;
• the agreed amount may not exceed the value of the assets being hedged;
• every swap appears in the monthly portfolio.

There a swap shows as two entries: a floating-rate holding to the next reset date, and an opposite fixed-rate one for the swap's remaining life. So a fixed-rate bond on the list does not by itself break the 65% rule.

Yes. Floating-rate bonds are valued at market prices, the same way as fixed-rate ones, so a floater fund's NAV can go down as well as up. The NAV is the price of one unit.

SEBI's investor site gives the general rule: bond prices may fall as rates rise, and rise as rates fall.

Fund houses say in their scheme documents that a floater usually moves less than a fixed-rate bond of the same length when rates change. They put this down to its interest being reset every few months. The flip side: when rates fall, it gains less. Its value can still fall, for example if lenders start demanding a bigger margin, the extra interest paid above the benchmark.

Macaulay duration is the weighted average wait, in years, for a bond's payments to come back, each weighted by its value today. SEBI uses it to measure interest-rate risk, the chance that a move in rates changes what the bonds are worth. A longer duration gets a higher risk score.

A floating-rate bond behaves like a short bond, because its interest is reset often. Fund houses warn that its price can still swing more than its duration suggests. So look at how long the fund's bonds actually run as well.

Fund factsheets usually show the portfolio's Macaulay duration. Look there too for its yield to maturity (YTM), the return the bonds would give if held to maturity at today's prices.

Because SEBI scores each fund's own portfolio, and portfolios differ. The riskometer is SEBI's compulsory risk label, with six levels from Low to Very High, reviewed monthly.

For a debt fund, three scores go into a simple average, and the result sets the level:

• credit risk: how likely a borrower is to pay late or not at all;
• interest-rate risk: read from the portfolio's Macaulay duration;
• liquidity risk: whether a holding could be sold quickly at a fair price. When this score tops the average, it replaces it.

Most listed floater funds read Moderate on 29 September 2026; others read Low to Moderate or Moderately High. If a fund's level changes, the fund must tell you by email or SMS.

The Potential Risk Class (PRC) is a second SEBI label. Its grid has 9 cells, and each one caps how much interest-rate and credit risk the fund may carry. The fund house chooses it, and it works as a ceiling, not a target. With no SEBI duration band or rating floor, a floater fund's cell is the limit on both.

The short duration funds page walks through the grid.

Each follows a different kind of rule. Short duration is about how long the portfolio runs, money market about what it buys, floater about the interest it earns.

• Short duration funds keep the portfolio's Macaulay duration between 1 and 3 years. SEBI now calls them Short Term Fund.
• Money market funds hold money market instruments maturing within a year. Examples are Treasury bills, certificates of deposit (short IOUs from banks) and commercial paper (short IOUs from companies).
• Floater funds keep at least 65% in floating-rate instruments, swapped fixed-rate ones included, with no duration band.

On 29 September 2026, most listed short duration funds read Moderate, and most listed money market funds read Low to Moderate.

Koshex suggests 1 to 3 years for floater and short duration funds, and up to a year for money market funds. None is a SEBI rule. A pilgrimage planned for about eighteen months from now falls inside the floater range.

Selling units back to the fund is called redemption, and the fund must pay you within 3 working days. Koshex helps you choose a fund that suits your goal and timeline.

If you bought on or after 1 April 2023, the gain is taxed at your slab rate, however long you held. Your slab rate is the rate on your normal income. The rule is section 76 of the Income-tax Act, 2025.

It covers any Specified Mutual Fund, one with more than 65% in debt and money market instruments, floater funds included. Gains on newer units always count as short-term capital gains, whatever the holding period (the time from buying a unit to selling it).

Older units differ. Held 24 months or less, they give a short-term gain at your slab rate. After that the gain is long-term, taxed at 12.5% without indexation, so your cost gets no inflation adjustment.

Here is an assumed gain, not a forecast. You bought units in August 2024 and sell them in September 2026 for ₹47,000 more than you paid. Because they were bought after 1 April 2023, all of it goes in at your slab rate. Then 4% cess is added to the tax. No surcharge is assumed; that extra charge on tax starts once total income passes ₹50 lakh.

• Top slab 20%, no surcharge: ₹9,400 tax plus ₹376 cess, so ₹9,776.
• Top slab 30%, no surcharge: ₹14,100 tax plus ₹564 cess, so ₹14,664.

A resident's redemption has no TDS (tax taken out before money reaches you).

IDCW is a payout from the fund's income or gains, and the NAV drops by the amount paid. It counts as income, at your slab rate. If your IDCW from a single fund house tops ₹10,000 in a tax year, 10% TDS is deducted from all of it. You get credit for that TDS when you file, and any excess comes back as a refund.

Losses on units bought on or after 1 April 2023 are short-term too. They can offset other capital gains that year, or be carried forward up to eight years if you file on time, but never your salary.

Start with the 3-year and 5-year CAGR, then read the riskometer, expense ratio and AUM beside it. CAGR is the average yearly growth rate, as if the fund grew at one steady pace.

There are 11 listed floater funds, and the table shows the top 10 for the ranking you choose. 11 have a 3-year record, so only these are ranked on 3-year return and counted in the averages. Those simple averages are 6.7% over 3 years and 6.9% over 5. They describe the past only.

• Expense ratio: what the fund charges each year, as a percentage of your money, deducted from its value.
• AUM (assets under management): the fund's total money at today's value. Listed floater funds hold ₹39,540 Cr in all.
• Holdings. In the funds on this list at the end of August 2026, company bonds were the largest share. Cash, state government loans and certificates of deposit followed.
• Portfolio updates. Debt funds publish their full portfolio monthly, and every fortnight with each holding's yield.
• Exit load is a charge for selling soon after you buy, within a period the fund sets. SEBI does not set an exit load for this category. Each fund sets its own, if any, in its scheme document; some charge none. No lock-in, a period when selling is barred, applies.

Figures are for the regular plan, the version bought through a distributor such as Koshex (AMFI registration ARN-154632). A distributor helps you choose and stays with you afterwards. We keep reviewing what you hold and tell you when a fund's category, risk or ranking shifts.

A lumpsum is one larger payment. A SIP puts in a fixed sum at regular intervals, usually monthly, and each instalment has its own holding period. Which suits you depends on whether the money comes in one go or month by month.