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Floating rate bonds have a rate of interest that is not fixed and changes over time. Typically, a floating rate bond’s interest rate is tied to an external benchmark interest rate. For example – The RBI’s floating rate bond’s interest rate is tied to the interest rate of NSC or National Savings Certificate and is always 0.35% higher than the NSC interest rate. The advantage of investing in floating rate bonds is that their price volatility is very low. However, floating rate bonds work against the investor when interest rates are falling. This makes them a double-edged sword.
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