• A floating rate fund is a fund that invests in financial instruments with variable or floating interest rates. A floating rate fund invests in bonds and debt instruments, the interest payments on which fluctuate depending on the level of the base interest rate.

  • Variable rate funds may include corporate bonds as well as loans from banks to companies. These loans are sometimes repackaged and included in a fund for investors. However, loans may carry the risk of default.
  • Although floating funds offer returns in the face of rising rates, since they fluctuate with rising rates, investors should weigh the risks associated with investing in funds and research funds.