FLOATING RATE FUND

A type of mutual fund that invests in financial instruments with variable or floating interest rate. A floating rate fund invests in bonds and debt instruments whose coupons fluctuate in line with the underlying level of interest rates, as opposed to fixed-rate coupons. The biggest advantage of a floating rate fund is its lower degree of sensitivity to changes in interest rates compared with a fund or instrument with a fixed coupon rate. Floating rate funds appeal to investors when interest rates are rising, since this will result in a higher level of interest or coupon payments. They are far less appealing when interest rates are declining.

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