Floating-rate-bank-loan funds can be used as a shorter term investment option. These loans are made by banks to investment grade companies and below investment grade companies. Interest rates are set short term, about 60 days. The interest rate changes frequently in small increments so the risk to principal is minimized. The banks hold about half of these loans and sell the remainder to mutual funds, ETFs and other specialty finance companies. You participate by purchasing the mutual fund or ETF as a short term investment. Rates can increase or decrease but you will earn something higher than bank money market funds by three to four percent usually. This is not for your long term money but it can be a good short term investment for funds you are unlikely to use in the next 6 months.
If you’re interested in learning more about floating-rate-bank-loan funds or other short term investment options, talk to one of our financial planners right now.