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loan participation fund

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Definition
Mutual fund that invests in loans with higher-than-normal interest rates, made usually to stable and successful firms that have low credit-ratings because of their age, industry, or other factors. Although such loans are not investment-grade, they are secured by the firm's assets, and therefore are of higher quality than the junk bonds. Due to their high interest earnings, loan participation funds are able to offer higher-yields than the investment-grade funds. Also called floating rate fund.