SBI Floating Rate Debt Fund NFO – Who can invest?

SBI Floating Rate Debt Fund NFO Review

SBI Floating Rate Debt Fund NFO – Who can invest?

SBI mutual fund is planning to launch floating rate debt fund that would open for subscription on October 6, 2020. Floating rate debt funds are mutual funds that invests majorly in floating rate instruments including fixed rate instruments converted to floating rate exposures using swaps/ derivatives. In simple terms, it invests in financial instruments with variable or floating rate of interest. In this article we would provide SBI Floating Rate Debt Fund NFO issue details and various risk factors associated with such funds.

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Issue details of SBI Floating Rate Debt Fund (NFO)

This is an open-ended equity mutual fund scheme. Here are the NFO details.

Scheme Opens 06-Oct-20
Scheme Closes 08-Oct-20
Scheme reopens for continuous purchase/sale After 5 working days from closure of NFO
Scheme Plans Direct and  Regular
Growth and Dividend
Minimum investment (Lumpsump) Rs 5,000
Minimum investment (SIP) Rs 1,000 / 12 months
NAV of the fund Rs 10 during NFO period
Entry Load Nil
Exit Load 0.1% if exited within 3 days
Risk Moderate
Max Total expense Ratio (TER) 2.00%
Benchmark CRISIL Ultra Short Term Debt Index

Download SBI Floating Rate Debt Fund SID

What is the investment objective of this MF scheme?

An open-ended debt scheme investing predominantly in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/ derivatives).

The investment objective of the scheme is to generate regular income through investment in a portfolio comprising substantially of floating rate debt instruments. The scheme may invest a portion of its net assets in fixed rate debt securities swapped for floating rate returns and money market instruments.

There is no assurance or guarantee that the investment objective of the scheme will be realized.

Who is eligible to invest in this mutual fund scheme?

The following can invest in this scheme.

1) Indian resident adult individuals, either singly or jointly.

2) Minors through Parents/Lawful Guardian.

3) Hindu Undivided Family (HUF) through its Karta.

4) Partnership Firms in the name of any one of the partners.

5) Proprietorship in the name of the sole proprietor.

6) Companies, Body Corporate, Societies, Association of Persons, Body of Individuals, Clubs and Public Sector Undertakings registered in India if authorized and permitted to invest under applicable laws and regulations.

7) Banks

8) Non-Resident Indians (NRIs) / Persons of Indian Origin (PIO) on full repatriation basis or on non-repatriation basis;

Complete list of eligible participants who can invest can be checked in the NFO prospectus.

Also Read: Mirae Asset Short Term Fund – Should you buy?

Who is the Fund Manager of SBI Floating Rate Debt Fund?

Here are the fund manager’s details.

Mr. Rajeev Radhakrishnan

Mr. Mohit Jain – Foreign Securities

What is the benchmark for this scheme?

The benchmark for this scheme is CRISIL Ultra Short Term Debt Index.

What is the allocation pattern in this mutual fund?

This fund investment pattern is as follows:

Where it invests Allocation % Risk Profile
Floating rate securities* (including fixed rate securities
converted to floating rate exposures using swaps /
65% to 100% Low to medium
Fixed rate debt securities, securitized debt, money
market instruments and units of mutual funds including
debt ETF
0% to 35% Low to medium
Units issued by REITs and InvITs 0% to 10% Medium to High

Why to invest in the SBI Floating Rate Debt Fund?

Here are a few reasons to invest in such debt funds.

1) This floating rate debt fund is like ultra short term debt fund would invest in instruments which would mature in 3 to 6 months, however, invest in financial instruments that has a variable or floating rate of interest. Such funds would help and provide stable returns irrespective whether interest rates are going up or down.

2) Floating rate funds have historically provided 6% to 8% annualized returns though not guaranteed. If you are looking for returns higher than bank FDs, one can invest in such funds.

Some key risk factors you should consider before you invest in such funds

One should consider some of these risk factors / negative factors before investing.

1) This fund would invest in floating rate instruments and it would get benefitted during increase in interest rates. Currently we are seeing that interest rates have fallen or expected to further fall. In this situation, such funds might not perform well in the future.

2) Since it invests in debt instruments, these would carry credit risk, default risk and liquidity risk.

3) The scheme may invest in derivatives up to 100% of the net assets of the scheme and up to 10% in REITs and InvITs which are high risk.

4) Scheme also intends to invest in foreign debt instruments where there could be geopolitical risks and exchange rate risk.

5) You can refer complete risk factors of investing in this particular scheme in SID / KIM.

Performance of existing Floating Rate Debt Funds in India

Here is the performance of existing funds in this category.

Fund Name 6 month Annualised Returns
1 Year 3 Year 5 Year
Nippon India Floating Rate Fund 6.2% 10.5% 7.9% 8.0%
ICICI Prudential Floating Interest Fund 5.3% 9.1% 7.7% 7.9%
Kotak Floating Rate Fund 5.7% 9.1%
HDFC Floating Rate Debt Fund 5.0% 8.7% 8.0% 8.0%
Aditya Birla Sun Life Floating Rate Fund 4.9% 8.6% 8.0% 8.2%
UTI Floater Fund 4.5% 7.5%
Franklin India Floating Rate Fund 3.1% 6.3% 6.7% 6.5%

Also Read: 3 Fixed Deposits that offer up to 8.4% interest

Should you invest in SBI Floating Rate Debt Fund NFO?

SBI Floating Rate Debt Fund invests in financial debt instruments that has variable or floating rate of interest. It also invests upto 100% in derivatives, 10% in REITs and InvITs and up to 25% in foreign debt instruments. I would not call this as just short term fund. Short term funds are moderate to low risk. For me this should be categorized as moderately high risk fund. High risk investors who are willing to invest for short term of say 6 months, can invest in this fund. Moderate to low risk investors can stay away from this fund.

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Suresh KP

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