The fund invests in either floating rate instruments (instruments whose yields change with change in benchmark rates) or in fixed coupon instruments which are converted to floating rate by using Swaps/Overnight Index Swap (OIS). 

Tata Floating Rate fund provides flexibility in response to a changing interest rate environment. The fund aims to utilize the flexibility to manage interest rate risk and enable investors earn reasonable accrual returns. The Fund aims to create a portfolio of optimal credit quality along with lower net duration risk enabling investors to earn reasonable accrual returns.

The portfolio must hold at least 65% of the fund in floating rate instruments, which are of two types:

1. Pure floating rate instruments – Benchmark + Speed
   • Better and diversified universe available
   • Benchmark generally treasury bill yields and repo rate
2. Synthetic Instruments which convert fixed rate securities into floating instruments through swaps. – Buy Cash and Pay OIS)
   • Normal bonds/G-Sec buy
   • Pay OIS
   • Position Becomes floating rate (receive fixed coupon- pay fixed OIS – receive floating overnight)

The portfolio of a Floating Rate Fund may be positioned along 3 broad lines:

1. Buying into a particular maturity and swapped using OIS. The fund manager can then let the maturity of the portfolio run down over time.
2. A credit strategy where the portfolio is built by buying higher yield papers and gaining accrual returns.
3. A Flexible strategy where the position is built to sit astride the accrual cycle in order to generate reasonable accrual returns with flexibility in terms of maturity and duration.

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