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Floating rate bonds are debt instruments with interest payments that fluctuate based on benchmark rates, helping investors hedge against rising interest rates. These bonds include government-backed and corporate-issued options like floating rate savings bonds and floating rate coupon bonds, offering potential for higher returns in changing markets. Browse our curated list of floating rate bonds in India to find flexible investment options that suit your portfolio needs.
What Are Floating Rate Bonds?
Floating rate bonds (FRBs) are debt instruments where the interest rate (coupon) is not fixed but resets periodically based on a benchmark, such as the repo rate, MIBOR, or government bond yields. Unlike traditional fixed-rate bonds, the coupon of a floating coupon bond moves in line with market interest rates, making them a preferred choice during rising rate environments.
In India, investors can explore floating rate bonds, including floating rate savings bonds issued by the Government of India.
Key Features of Floating Rate Bonds
Variable Interest: Coupon rate adjusts periodically (every 6 months or annually).
Benchmark-Linked: Usually tied to repo rate or government securities yield.
Lower Interest Rate Risk: Protects investors in rising interest rate cycles.
Maturity: Typically 5-7 years, depending on the issuer.
Issuer Types: Government of India, PSU banks, and corporates.
Why Invest in Floating Rate Bonds?
Hedge Against Rising Rates: Coupon resets help maintain purchasing power.
Steady Income: Payouts linked to benchmark rates.
Diversification: Useful addition to a bond portfolio to balance fixed-rate exposure.
Government Backing (Savings Bonds): Floating rate savings bonds issued by the RBI are sovereign-backed, making them highly secure.
Liquidity: Certain floating bonds investment options are listed on NSE/BSE.
Risks & Considerations
Falling Rate Risk: Returns decline in a low-interest environment.
Liquidity Constraints: Not all floating rate bonds are easily tradable.
Credit Risk: Corporate float bonds carry issuer default risk.
Complexity: Investors must understand how benchmark rates influence returns.
Floating Rate Bonds in India
The Indian market offers multiple options:
Government Floating Rate Savings Bonds 2020 (Taxable): Backed by RBI, linked to NSC rates, with a 7-year maturity.
Corporate Floating Rate Bonds: Issued by companies with coupons linked to repo/MIBOR.
Floating Rate Debt Funds: Mutual funds that invest in floating bonds for retail participation.
Platforms like Jiraaf provide investors access to floating bonds investment opportunities with transparent terms.
FAQs on Floating Rate Bonds
They are bonds with a variable interest rate that resets periodically based on a benchmark.
Issued by the Government of India, these sovereign-backed bonds pay interest linked to NSC rates and reset every 6 months.
They are better in rising interest rate cycles as the coupon adjusts upwards, but may underperform fixed bonds when rates fall.
A floating coupon bond resets its interest rate periodically, while a fixed bond pays the same rate throughout its life.
Yes, they can invest in floating rate savings bonds via banks or explore corporate floating bonds investment through online platforms.
It's a mutual fund that primarily invests in floating rate instruments, offering diversification and professional management.
No, returns fluctuate with benchmark rates, though sovereign floating rate savings bonds guarantee principal safety.
Most floating rate bonds in India have medium-to-long-term maturities (5-7 years), so they are more suitable for medium-term investors seeking interest rate protection.
