Will the interest price continue its lengthy term trend of moving reduce or will it see a rise specifically in the brief to medium term? The answer to this may perhaps not be an simple one to crack and taking a guess may perhaps not be the appropriate method. In these occasions, a debt fund that moves in tandem with interest price movement may perhaps prove to be more successful than other people. And, the Floating price fund does specifically that. The floating price fund invests in either floating price instruments (instruments whose yields alter with alter in benchmark prices) or in fixed coupon instruments which are converted to floating prices by applying swaps.
Tata Mutual Fund announced the launch of Tata Floating Rate Fund – an open-ended Debt Scheme predominantly investing in floating price instruments (like fixed-price instruments converted to floating price exposures applying swaps/derivatives). The New Fund Offer (NFO) opens on June 21, 2021, and will close on July 5, 2021.
The Fund will endeavour to create comparatively steady returns via a portfolio comprising substantially of floating price debt, fixed-price debt instruments swapped for floating price returns and cash marketplace instruments. The fund aims to invest a minimum of 65% of its corpus in floating price securities issued by corporates or the government or convert fixed interest securities to floating through derivatives.
Such a fund offers flexibility and self-adjusting to a altering price atmosphere. Floating price fund also offers us the flexibility to not only handle interest price threat via altering allocation to debt instruments (shopping for various tenure or duration papers), it also offers a further tool in the kind of swaps to handle duration and at exact same time pick the optimal mix. Overall, one has the flexibility to move the fund positioning with altering attributes or dynamics of the marketplace.
Akhil Mittal, Senior Fund Manager at Tata Asset Management explains the rationale behind launching Tata Floating Rate Fund, “If we look at overall interest rate cycle, with inflation remaining high, we believe the easing cycle is behind us and what follows is normalization of policy.
RBI will most likely reduce the excess accommodation and would address liquidity and rate corridor (difference in reverse repo and repo) first and follow up with rate movement as and when required. RBI will stay put on current accommodation for this FY, and any sort of normalization will start only after 6-9 months.
In line with this view, we expect reverse repo to remain the operating rate (liquidity to remain systemically surplus) and reverse repo to gradually rise and come back to normal band of 25bps below repo rate from current 65 bps below repo rate.
With this view in mind, it is imperative that we manage our positioning and duration in such a way that any policy change or rate movement has a lesser impact on our investments and we move with broader directional change in the market. Hence, we have launched our new Fund, Tata Floating Rate Fund in the debt category to suit the upcoming rate cycle and would provide a good alternative to other debt funds or products”.