ALL YOU NEED TO KNOW ABOUT FLOATING RATE FUNDS
Liquid funds are currently generating around 3.3% annualized return. Interest rates probably MIGHT have bottomed out & may start going up in another 6 months from today (negative for Fixed Income, we will discuss this ahead). Where should you invest in this environment in Fixed Income right now? (1) While investing in fixed income, we can’t ignore these 3 major risks, (a) Credit Risk – Something that we saw a little while back with IL&FS, DHFL, Zee etc., where there is a risk to the overall health of the company & hence an increase in probability for a default (b) Liquidity Risk – Not being able to receive the investment back at the fair market value when you want it. Some products have lock in & hence they don’t allow pre mature withdrawals lets say NSC & some charge you a penalty for the same like say FD’s. (c) Interest rate risk / duration risk – After you invest, interest rates can go up or down which can be risk...