Assessing the past returns of a mutual fund is vital to judging the overall mutual fund performance. It is advised to consider other factors as well including the category of fund scheme, fund manager’s performance, credibility of fund house and other macro-economic factors, however, the past performance is seen as one of the key factors by potential and current investors.
Here we examine the past performance of floating rate bonds in the past three years. But at the outset, we would define what exactly are these bonds:
What are floating rate bonds?
Floating rate bond is a debt instrument with a variable rate of interest which is reset according to its benchmark rate. During a rising interest rate scenario, floating rate bonds are seen as a good investment option since their coupon gets tweaked in accordance with increase in rates.
There are nearly a dozen floating rate funds but only a few of them have a track record of more than five years.
Three-year returns
There are five floating rate funds which managed to beat the benchmark indices in the past three years. These include Aditya Birla Sun Life (ABSL) Floating Rate Fund, HDFC Floating Rate Debt Fund, ICICI Prudential Floating Interest Fund, Kotak Floating Rate Fund and Nippon India Floating Rate Fund.
| Mutual Fund | 3-year-returns (%) | Benchmark index (%) |
| Kotak Floating Rate Fund | 6.24 | 5.82 |
| Nippon India Floating Rate Fund | 6.20 | 5.96 |
| HDFC Floating Rate Debt Fund | 5.90 | 4.96 |
| Aditya Birla Sun Life Floating Rate Fund | 5.59 | 5.47 |
| ICICI Prudential Floating Interest Fund | 5.84 | 5.47 |
(Source: AMFI data; 3-year regular returns as on Nov 30)
As we can see from the table above, the highest 3-year-returns were given by Kotak Floating Rate Fund which gave a CAGR of 6.24 percent against the benchmark index return of 5.82 percent.
This was followed by Nippon India Floating Rate Fund which gave a CAGR of 6.20 percent against the benchmark index return of 5.96 percent.
HDFC Floating Rate Debt Fund gave a return of 5.90 against the benchmark index return of 4.96 percent.
Aditya Birla Sun Life Floating Rate Fund gave a return of 5.59 percent against the benchmark index return of 5.47, whereas ICICI Prudential Floating Interest Fund gave a return of 5.84 percent with the same benchmark index return.
Those who intend to invest in floating rate funds must be mindful of the fact that their market is not very huge, so the market regulator SEBI permits these funds to convert fixed rate coupons to floating rate ones by using instruments such as interest rate swaps.
