A Prime Rate Fund is a type of fixed-income mutual fund that invests primarily in floating-rate corporate loans—also known as bank loans or leveraged loans—that carry interest rates tied to a reference prime lending rate. As interest rates rise, the coupon on the underlying loans adjusts upward, providing the fund with protection against interest rate risk. These funds are popular among investors seeking higher yields than money market funds while maintaining some insulation from duration risk. In India, a similar concept exists through floating rate mutual funds and dynamic bond funds that actively manage interest rate exposure based on the prevailing rate cycle.
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