List of Best Floater Rate Funds in India for 2025
Floating-rate mutual funds in India offer a flexible investment option by investing in debt instruments with interest rates that reset periodically. As interest rates fluctuate in 2025, these funds offer a way to hedge against rising rates. In this blog, we’ll explore the key features, benefits, risks, and top-performing floating rate funds in India to help you make informed investment decisions.
Top Floater Rate Funds In India as per AUM
| Fund Name | AUM (in Cr) | Expense Ratio (in %) | 1Y Returns | 3Y CAGR | 5Y CAGR |
|---|---|---|---|---|---|
| ICICI Pru Floating Interest Fund | ₹9,557.71 | 0.56 | 8.66% | 6.77% | 7.50% |
| Nippon India Floating Rate Fund | ₹7,817.10 | 0.31 | 8.04% | 6.05% | 7.15% |
| Kotak Floating Rate Fund | ₹4,176.26 | 0.24 | 8.24% | 6.23% | 7.04% |
| HDFC Floating Rate Debt Fund | ₹15,189.39 | 0.26 | 8.36% | 6.53% | 7.00% |
| Aditya Birla SL Floating Rate Fund | ₹12,399.83 | 0.23 | 7.94% | 6.35% | 6.70% |
| Franklin India Floating Rate Fund | ₹300.22 | 0.23 | 8.92% | 6.75% | 6.53% |
| UTI Floater Fund | ₹1,367.69 | 0.42 | 7.45% | 5.85% | 6.28% |
| SBI Floating Rate Debt Fund | ₹1,126.76 | 0.26 | 8.63% | 6.42% | - |
| Bandhan Floating Rate Fund | ₹277.49 | 0.31 | 8.00% | 6.06% | - |
| DSP Floater Fund | ₹891.77 | 0.25 | 9.10% | 6.41% | - |
Disclaimer: Please note that the above table is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing. The data is derived from Tickertape Stock Screener and is subject to real-time updates.
Note: The data on this list of the best floating rate funds is from 10th November 2025, and the data is derived from Tickertape Mutual Fund Screener.
🚀 Pro Tip: You can use Tickertape’s Mutual Fund Screener to research and evaluate funds with over 50+ pre-loaded filters and parameters.
Overview of the Floater Funds in India (2024)
HDFC Floating Rate Debt Fund
HDFC Floating Rate Debt Fund invests mainly in debt instruments that carry variable interest rates. The fund manages interest rate volatility by adjusting to changing market conditions. It gives exposure to corporate bonds, money market instruments and government securities.
Aditya Birla SL Floating Rate Fund
Aditya Birla SL Floating Rate Fund focuses on debt and money market instruments with floating interest rates. Its portfolio structure reduces sensitivity to interest rate movements. The fund invests across issuers and maturities to maintain liquidity and stability.
Nippon India Floater Fund
Nippon India Floater Fund invests in floating-rate debt instruments and securities linked to market interest rates. It aims to minimise interest rate risk and maintain steady income generation. The portfolio includes corporate bonds, government securities and short-term money market instruments.
ICICI Pru Floating Interest Fund
ICICI Pru Floating Interest Fund primarily invests in floating-rate debt securities, aiming to manage interest rate fluctuations effectively. The fund maintains a diversified portfolio of short-term and medium-term instruments, offering exposure to both corporate and government-backed issuances.
Kotak Floating Rate Fund
Kotak Floating Rate Fund invests in floating rate debt and money market instruments that adjust to changes in market interest rates. Its strategy manages duration risk through variable coupon securities and maintains liquidity through a diversified portfolio of corporate and sovereign issuances.
What are Floater Rate Funds?
Floater Funds are debt mutual funds that invest mainly in bonds and money market instruments with floating interest rates. These securities do not carry a fixed interest rate. The rate resets at regular intervals based on a benchmark such as the repo rate or the treasury bill yield. This structure makes floater funds less sensitive to interest rate changes compared to fixed-rate debt funds. People use them in situations where interest rates rise or fluctuate because the coupon adjusts in line with market rates.
Tax Implications of Floater Funds as per the 2024 Budget
The latest tax implications of floater funds help you understand how debt mutual funds are taxed. Floating-rate funds fall under the category of debt mutual funds. The Union Budget 2024 introduced significant changes to the taxation of debt mutual funds. Here is a simple breakdown of the updated rules.
| Tax Type | Holding Period | Tax Rate |
| Short-Term Capital Gains (STCG) | Less than 3 years | Taxed as per the income tax slab |
| Long-Term Capital Gains (LTCG) | More than 3 years | 20% with indexation |
| Dividend Taxation | Any holding period | Taxed as per slab; 10% TDS if dividend exceeds ₹5,000 |
How to Invest in Floater Funds?
You can easily start to invest in floater rate mutual funds by following these steps:
- To invest in the best floater rate mutual funds, you can visit a mutual fund investment platform such as smallcase.
- The next step is to research and identify the floater rate mutual funds that match your financial goals. Tools like the Tickertape Mutual Fund Screener can help you filter and compare funds based on parameters such as returns, expense ratio, and fund size.
- Once you shortlist the funds, visit smallcase, log in, and search for the fund by name. You can then choose the investment mode, either a one-time or lump sum, and complete the process.
What is the Difference Between Floater Funds vs Liquid Funds?
| Parameter | Floater Funds | Liquid Funds |
| Investment Focus | Debt securities with floating interest rates | Short-term money market instruments up to 91 days |
| Return Behaviour | Returns change with interest-rate movements | Returns remain relatively stable due to very short maturities |
| Volatility | Moderate, as rates fluctuate | Low, due to minimal interest-rate sensitivity |
| Interest-Rate Impact | Beneficial when interest rates rise | Limited impact from rate changes |
| Liquidity | High, but may vary across market conditions | Very high, designed for quick redemption |
| Risk Level | Moderate | Low |
| Suitable For | Investors comfortable with fluctuating returns (non-recommendatory description) | Investors seeking stability and liquidity (non-recommendatory description) |
How do Floater Funds Work?
Floating rate funds invest in a mix of preferred stock, corporate bonds, and loans that usually mature within one month to five years. They may include floating-rate corporate loans and mortgage-backed instruments that adjust according to market rates. Banks issue floating-rate loans to companies, then pool and repackage them for investors, much like mortgage-backed securities.
The pooled loans or mortgages create a combined rate of return based on the underlying floating-rate assets. These floating-rate loans act as senior debt, giving them priority in repayment if a borrower defaults. However, the term “senior” only refers to the repayment order and not to the borrower’s credit strength.
Floater funds also hold bonds with interest rates that reset periodically according to market benchmarks. These bonds often track a benchmark such as the federal funds rate plus an added spread. When market interest rates rise, the coupons on floating-rate instruments increase, which boosts the fund’s overall return.
Types of Floater Rate Funds
Floater funds fall into two main categories:
- Short-term Floating Funds: Short-term Floating Funds focus on debt securities with shorter maturities and invest in highly liquid instruments such as government securities, deposit certificates and T-bills.
- Long-term Floater Funds: Long-term Floater Funds hold a more diversified portfolio and invest in floating interest instruments, along with notable allocations to the money market or fixed interest instruments.
Features of Floater Rate Funds
- Open-ended Structure: An open-ended structure means that floater funds operate as open-ended schemes, allowing investors to enter or exit at any time. This structure offers flexibility similar to most debt mutual funds.
- Diversified Allocation: A Diversified Allocation means these funds allocate a large portion of their portfolio to floating-rate debt instruments and place the rest in fixed-income securities. This mix helps the fund adjust to interest rate changes while maintaining exposure across different types of debt assets.
- Lower Interest Rate Sensitivity: Lower Interest Rate Sensitivity means that floater funds react less to interest rate movements compared to long-duration or aggressive debt funds, as their coupon payments reset periodically. They still carry credit risk depending on the quality of the underlying issuers.
Benefits of Floating Rate Funds
- Low Risk: These funds invest in bonds, government securities, and fixed-income instruments. This approach reduces the risk of capital loss and maintains the investment’s stability.
- Possibly High Returns: Floater funds work to minimise risk and aim to maximise profits. The fixed income portion can generate steady returns, and the floating rate portion can support capital growth.
- Accessibility: You can start investing in floater funds with low minimums. You can begin with a lump sum of ₹5,000 or more, or start a Systematic Investment Plan with ₹500 per month. The entry point can be as low as ₹500.
- Diversification: Floater funds help you diversify your capital. They strike a balance between high-risk instruments and financial commitments, offering broader exposure within a single investment.
Risks of Investing in Floating Rate Funds
- Interest Rate Dependency: Floater fund returns fluctuate in line with benchmark interest rates set by the Reserve Bank of India. Any reduction in these rates leads to losses and affects corporate bonds and government securities. Investors need to study India’s macroeconomic environment before they invest in floater funds.
- Credit Risk: Fund managers attempt to select strong debt instruments; however, the risk of rating downgrades or issuer defaults remains. A downgrade reduces the fund’s value, and a default significantly affects returns.
- Lack of Control: Investors control how much they invest, but depend on the fund manager to pick debt instruments. Checking the fund manager’s reputation and track record becomes essential while selecting a floater fund.
Factors to Consider While Investing in Floating Funds
- Performance: Past returns over 1 year, 3 years, 5 years, and since inception show how a fund moves during different interest-rate cycles. Floater funds from other fund houses show varied return patterns.
- Comparison with Benchmarks: Floater funds usually compare their performance with the CRISIL Low Duration Debt Index or the NIFTY Low Duration Debt Index. These comparisons show how the fund aligns with broader market indicators over time.
- Expense Ratio: Floating-rate funds charge an expense ratio that typically ranges from 0.22% to 0.60%. This figure shows the annual cost the fund house charges for managing the scheme.
- Tax Implications of Floater Funds: Under the Union Budget 2024, long-term capital gains on units held for more than three years are taxed at 12.5% without indexation. Short-term gains are taxed according to the investor’s income tax slab.
- Financial Goals: Floater funds have historically offered returns of 6% to 8.50%. Their movement changes with interest-rate shifts. Investors use these details to assess how the fund’s traits align with different time horizons.
- Exit Load: Most floater funds do not apply an exit load. This means that withdrawals usually do not incur an additional charge. Specific terms differ across fund houses.
- Fund Manager’s Expertise: Floater funds react to changes in interest rates and inflation. Fund documents explain how the manager reads these macro trends and builds the portfolio.
Who Can Consider Investing in Floater Funds?
- Floating-Rate Exposure: This category is often chosen by individuals who prefer exposure to floating-rate corporate bonds, money market instruments, and government securities.
- Interest-Rate Observers: Some investors who track interest-rate movements tend to explore options where returns move in line with changing rates.
- Portfolio Variety: Floating-rate funds are sometimes included by those who want a segment that behaves differently from fixed-rate debt instruments.
- Stability Preference: People who prioritise relatively steady behaviour compared to equity or aggressive debt segments may consider this type of fund in their research.
- Tax-Aligned Choices: Within the debt mutual fund space, these funds are often reviewed by individuals assessing tax-efficient categories.
- Medium to Long Investment Horizons: Investors who remain invested through interest-rate cycles and broader market shifts sometimes evaluate floating-rate funds as part of their planning.
- Understanding Debt Dynamics: These funds are also studied by first-time debt fund participants who want to understand floating-rate instruments and rate-linked patterns.
- Quality-Focused Debt Preferences: Some investors examining high-quality debt segments with lower interest-rate sensitivity include floating-rate funds in their comparison.
- Alternative to Short-Term Categories: For individuals who prefer not to invest in liquid or ultra-short-term segments for shorter horizons, floating-rate funds may be a suitable option to consider when comparing interest-linked debt options.
When to Invest in Floater Rate Funds?
- Behaviour During Rising Interest Rates: Floater rate funds adjust to rising interest rates because the coupon on their underlying instruments resets in line with market benchmarks.
- Link to Monetary Policy Phases: Interest rates typically rise during periods of high inflation and contractionary monetary policy. This shift influences repo rates and other linked rates across the economy, which affects floater funds.
- Use of Surplus Funds in Such Conditions: Surplus funds often shift into floating-rate funds during these phases because interest payments tend to track current market rates more closely.
- Importance of Understanding Fund Characteristics: Understanding how floater funds react to changes in interest rates helps people read market conditions with more clarity.
- Alignment with Financial Goals and Time Horizon: People match their investment period with expected interest rate movements and their own financial goals, allowing them to make informed decisions.
How do Floater Rate Funds Generate Returns?
Floater rate funds generate returns when the debt securities in the portfolio earn interest and change in value. The portfolio accrues interest income every day, and issuer companies make periodic payments. Favourable changes in credit spreads can improve the valuation of these securities and create gains for investors. When a company’s credit rating improves, the credit risk premium falls. This shift makes the existing debt securities more attractive and adds mark-to-market gains to the portfolio.
Interest Rates on Floater Rate Funds
When you examine floater mutual funds, you see how closely they track changes in market interest rates. In India, shifts in the Reserve Bank’s repo rate influence returns on government securities and corporate bonds.
When the repo rate increases, returns on government bonds and other zero-risk instruments generally rise. Floater mutual funds hold securities with variable interest rates, so their returns tend to adjust as market rates move. During these periods, companies often change the interest rates on their debt issuances to align with broader market conditions.
Higher repo rates usually draw more interest to government securities because they offer higher rates with lower credit risk. This change can reduce demand for some corporate bonds and affect their prices. To manage borrowing needs, companies may issue debt with interest rates that fluctuate in line with the market.
Floater mutual funds react to these interest rate dynamics. Their yields and net asset values usually move in line with changes in the fixed income environment. These fluctuations remain a regular part of how such funds operate.
To Wrap It Up
Income-generating financial products, such as floating-rate funds, continue to attract attention. Investors are now exploring more alternative asset classes, and floating-rate funds offer diversification with some protection against interest rate fluctuations. These funds can enhance returns, but they also carry a higher risk profile. You assess your comfort with these risks and avoid taking more exposure than you can handle. You may also consult a financial advisor before you invest.
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Frequently Asked Questions(FAQs) on Floater Rate Funds
Floater funds primarily invest in floating-rate debt securities, such as corporate bonds, which have interest rates that fluctuate over time. They fall under debt mutual funds.
Floater debt funds hold either short-term or long-term maturities. Short-term debt mutual funds usually invest in government securities with a maturity of one year or less, such as treasury bills and certificates of deposit.
Floating rate funds can offer steady investment options with quality returns for those who prefer lower volatility. They still carry credit risk even though they remain safer than equity funds.
Floater funds invest in various securities, including corporate bonds, government securities, and treasury bills. This mix can reduce credit and default risk in the portfolio.
Floating-rate funds fall under the category of debt mutual funds. Under the Union Budget 2024-25, the LTCG tax rate stands at a flat 12.5% without indexation benefits. STCG follows your income tax slab rate.
