Floating rate bank loan funds are all the rage now, with $54.31 billion of capital stampeding into these types of mutual funds during the year's first 10 months.

If you haven't encountered them before, floating rate bank loan funds consist of senior secured loans made to mostly sub-investment-grade companies. The rates on the loan aren't fixed but instead float, so when interest rates rise, your dividend payout should increase too.

While this sounds good in an uncertain interest rate environment, there are some dangers, says Wall Street Journal columnist Jason Zweig.

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As for the problems, Zweig notes that the closed-end bank loan funds often borrow money to increase their income. That allows them to provide dividend yields over 6 percent on bank loans with interest rates of about 5 percent.

But when interest rates rise, the funds' cost of borrowing rises immediately. Meanwhile, interest rates on the loans don't increase immediately, so investors get squeezed on both ends, Zweig points out.

The average closed-end bank loan fund now trades 4.4 percent below net asset value, he says.

If the discount increases to 10 percent, go ahead and buy, he says. Otherwise stick to standard bank loan mutual funds, Zweig advises.

Count Brian Frederick, a financial planner at Stillwater Financial Partners in Scottsdale, Ariz., as a skeptic on bank loan funds. "[They] got hammered in 2008 and 2009," he tells CNBC.

"These companies [whose loans are in the fund] have a hard time even issuing junk bonds."

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