What are Floating Bonds in India?
Floating bonds, also known as floating rate bonds or variable rate bonds, are a type of debt instrument issued in India with an interest rate that adjusts periodically based on a reference benchmark rate. These bonds provide investors with an opportunity to participate in the changing interest rate environment while managing their exposure to interest rate risk.
Regulations and Issuance of Floating Bonds
The issuance and regulation of floating bonds in India are overseen by the Reserve Bank of India (RBI), the country's central banking authority. The RBI plays a crucial role in determining the reference benchmark rate to which the interest rates of these bonds are linked. Common benchmark rates used in India include the Mumbai Interbank Offered Rate (MIBOR) and other interbank lending rates.
Benefits and Features of Floating Bonds
Floating bonds in India offer several advantages. First, they provide protection against interest rate fluctuations. As the benchmark rate changes, the interest payments on these bonds automatically adjust, ensuring that investors receive a fair return that reflects prevailing market conditions. This feature makes floating bonds attractive to investors seeking stability in an evolving interest rate environment.
Considerations for Investors
Investors interested in floating bonds in India should carefully evaluate the terms and conditions associated with each bond offering. This includes understanding the frequency of interest rate adjustments, the formula used to calculate interest payments, and any additional features or provisions specific to the bond. Assessing risk tolerance and aligning investment objectives are essential steps in making informed investment decisions.