With interest rates showing signs of going up, long-term floating rate debt mutual funds are catching the fancy of risk-averse investors as it promises better return than even bank fixed deposits, analysts said in New Delhi.

Mutual funds are fast to capture the mood of investors and are launching more floating rate funds with the latest coming from Standard Chartered AMC. The other private players who have already launched such funds include Birla Sunlife AMC and Principal PNB AMC.

"A floating rate long-term debt fund is better than a bank FD," Standard Chartered AMC managing director Naval Bir Kumar said.

A typical bank fixed deposit for over five-year maturity is offering at best 5.5 per cent interest rate, which after taxation at 20-30 per cent slab provides a meagre 3.7-4.4 per cent return.

However, a long-term floating rate debt mutual fund can offer more than 4.8 per cent or 0.30-0.40 per cent more than Mibor while a short-term floating rate fund offers about 4.65-4.70 per cent.

Even if we take into account the 12.5 per cent dividend distribution tax and 10 per cent capital gains tax, the return for such a floating rate fund is attractive.