IDFC Floating Rate Fund NFO launched; Should you invest?

Staff Writer   /   February 8, 2021

IDFC Mutual Fund has announced the launch of a new fund offer (NFO) IDFC Floating Rate Fund. The NFO will open on Wednesday, February 10, 2021 and close on Tuesday, February 16, 2021. Here are more details about the product.

Fund objectives

IDFC Floating Rate Fund will endeavour to generate relatively stable returns through a portfolio comprising substantially of floating rate debt, fixed rate debt instruments swapped for floating rate returns and money market instruments. 

The fund aims to invest a minimum of 65% of its corpus in floating rate securities issued by corporates or the government, or convert fixed interest securities to floating via derivatives. Since there are not many issuances of floating rate securities, funds in this category may make use of a derivative strategy to comply with the 65% requirement of investment in floating rate instruments by combining fixed rate bonds with Swaps (like Overnight Index Swap).

IDFC Floating Rate Fund is the ninth scheme in the floater fund category that manages nearly Rs 60,000 crore of investors’ assets. The biggest funds in this space are Nippon India Floating Rate, HDFC Floating Rate and ICICI Pru Floating Interest.

Asset allocation

The fund currently targets a low to short duration portfolio such that it is suitable for a minimum recommended investment horizon of six months. At the time of investing, the portfolio strategy will aim to maintain a minimum of 70% in AAA/A1+Equivalent/Sovereign/Quasi Sovereign securities.

IDFC Floating Rate Fund does not intend to invest in securities rated lower than AA-. With this diluted credit strategy, the fund is designed for investors looking to diversify their current fixed income portfolio, and those seeking a lower investment horizon within their ‘Satellite’ allocation.

Investment framework

The IDFC 3-lens Debt Allocation Framework helps identify and manage risk in an investor’s debt portfolio. The framework segregates debt funds into three buckets: Liquidity, Core and Satellite. 

Liquidity allocations are meant for very short-term parking of surpluses or maintaining an emergency corpus. 

Core allocations should ideally form the bulk of an investor’s debt allocation, with funds that focus on high credit quality and low to moderate maturity profile matched to investment horizon. 

The Satellite bucket has funds that can take higher risk. Within these buckets are different fund offerings with varying minimum horizons that can aid decision making.

Additional fund details

Anurag Mittal, Senior Fund Manager, and Arvind Subramanian, Fund Manager and Head of Credit Research, each with over a decade of industry experience will be the fund managers. The scheme is benchmarked against the NIFTY Low Duration Debt Index.

Minimum investment – Rs 5,000
Minimum SIP amount – Rs 1,000
Exit load – Nil

Who should invest

The minimum recommended investment horizon of this fund is similar to IDFC Money Manager Fund and IDFC Low Duration Fund — however both these funds are part of Core Allocation as they run a constrained duration and credit strategy. In contrast, IDFC Floating Rate Fund is positioned in the Satellite bucket. 

Investors in IDFC Floating Rate Fund should understand that their principal will be at moderate risk.

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