Floater funds, which were running high on inflows last year, have started to lose steam. In three of the last four months, money has flown out of these schemes.
Overall, floater funds have seen a net outflow of Rs. 19,361 crore since November 2021. The outflows came post a high inflow period between June 2021 and October 2021, a time when floater funds were being pitched as the perfect solution for the rising interest rate scenario.
Between June and October, these schemes received a net inflow of Rs. 34,654 crore.
The change in fortune of floater funds, as per MFDs and experts, is a result of two factors with the first being a mix of misinformation and misunderstanding.
"Investors misunderstood the product when it was getting hyped up. There was a perception that floater fund returns will go up in line with the increase in interest rates, but in reality there is a time lag for the interest re-set whereas the mark-to-market impact when interest rates are going up (bond prices coming down) happens immediately. Investors may now be realising the fact and given that improper understanding leads to expecting instant results, they are shifting the money to shorter duration funds," says debt guru Joydeep Sen.
The second reason, as per Rishabh R Adukia, Chief Advisor at Ninecube, is the rise in clarity on the interest rate scenario.
"Investors were betting on floater funds earlier as there was not much clarity on the interest rate scenario. However, things are a bit clearer now. So, investors might be shifting money from floater funds to shorter duration schemes," he said.
The category has lagged behind most debt categories on the returns front. As per Value Research, only gilt and shorter-duration funds rank below floater funds in the 1-year returns chart.
