Prime rate fund

Prime rate fund

A mutual fund that buys portions of corporate loans from banks and pays the interest to shareholders.

Prime Rate Fund

A mutual fund that invests predominantly or exclusively in corporate loans. That is, the prime rate fund buys corporate loans (which are distinct from bonds) from the banks making them and passes the interest to shareholders. The risk of a prime rate fund depends on the weighted average risk of the loans represented in it.
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As well, Prime rate fund, insurance company and hedge fund investment in leveraged loans has grown dramatically.
One factor driving the overall market is the surge of new lenders, such as collateralized loan obligation (CLO) and prime rate funds, vehicles that have a big appetite for buying corporate debt and packaging it into securities for sale to institutional and individual investors.
Moreover, new credit-related activities like asset-backed commercial paper and prime rate funds have provided business with additional alternatives.
Borrowing rates on high-yield bonds skyrocketed during the quarter, leading institutional investors -- Prime rate funds and insurance companies that carefully weigh investments in loans and bonds -- often to opt for high- yield bonds, and their now hefty yield.
Banks and loan investors, such as prime rate funds and insurance companies, already have shown enthusiastic responses to a number of deals late last year and so far in 1999.