Individual investors are putting more money into bank-loan funds, taking added risk in a search for higher yields and a hedge against inflation as the Federal Reserve vows to keep interest rates at near-record lows.

U.S. floating-rate funds in April had the biggest inflows in 11 months, according to preliminary data from EPFR Global, a Cambridge, Massachusetts-based research firm. Investors poured $729 million into the funds, the most since $2 billion last May. The funds buy speculative-grade loans, a type of floating-rate debt that ranks senior to bonds and is used to finance buyouts.

"Where else can you get 4 percent to 5 percent with zero duration? Few places, as far as I know," said Christopher Remington, institutional money manager for Boston-based Eaton Vance Corp., which oversees about $24.7 billion in floating-rate loans for retail and institutional investors. Duration is a measure of interest-rate sensitivity. Most fixed-income investments fall in value as interest rates rise.

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