Floater funds Vs Inverse Funds: Explained
October 24, 2022
Many people often get confused between Floater Funds and Inverse Funds!!
However, both terminologies are essential.
Let us help you understand what floater and Inverse mean and the mechanism of both.
– Floater Funds:
Government entities, business entities, and individuals use debt instruments to obtain capital. It has two forms; long-term and short-term.
Debt Instruments have different types. For instance,
- long-term debt instruments include; debentures, bonds, Mortgages, and long-term loans.
- Short-term debt instruments include short-term loans, treasury bills, and working capital loans.
These debt instruments offer returns to investors in the form of periodical Interest. These interests can be fixed or floating.
Since their benchmark is subject to change in floating funds, the interest rate is not pre-fixed.
– Inverse Funds:
The inverse is interestingly contracting from a floater.
In inverse funds, the coupon rates go exactly opposite to the standard/benchmark interest rates. It has interest rate risk.
The inverse funds use by Government bodies and Corporates to raise capital.
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