4 min read.Updated: 25 Nov 2021, 09:49 PM ISTNeil Borate
Currently, around ₹4.3 trillion of government FRBs are outstanding, with the bulk being held by banks
With the impending threat of rising interest rates, mutual funds and banks have loaded up on floating rate bonds (FRBs). They are bonds whose interest payments (called coupons in technical terms) are linked to overall rates in the economy. Hence they offer protection to investors in a rising interest rate environment. Holdings of government-issued FRBs have gone from near zero in September 2019 to ₹51,000 crore in September 2021, data from a large financial services firm showed. However, some senior executives in the industry have independently raised concerns on the debt binge. FRBs are not held solely in floating rate funds but in various other short-term categories such as low duration or short duration funds.