What are overnight funds?

An overnight fund is a type of debt mutual fund that invests in securities that mature in a single business day. In simple terms, an overnight fund is a mutual fund that invests in overnight securities. These securities have a maturity period of just one business day, making them distinct from other types of mutual funds.

The core purpose of an overnight mutual fund is to offer potentially reasonable returns that are in line with its relatively low risk profile and high liquidity. The pooled money from an overnight fund is primarily channelled towards overnight securities. This makes these plans a preferred choice for institutions that want to park surplus funds for just one day or for investors with spare cash aiming for returns that are marginally superior to those of their current account.

Understanding the features of an overnight fund is instrumental for investors with specific short-term financial goals. Its blend of benefits, especially in terms of low risk and high liquidity, makes it an attractive option for both institutional entities and individual investors with idle cash resources.

Benefits of investing in overnight mutual funds

Relatively stable and potentially better returns: Ab clear advantage of an overnight mutual fund is its capability to provide potentially stable returns. While modest, the return potential is often marginally better than what a regular savings account might yield. However, the risk associated with overnight funds is comparatively higher than savings account.

Suitable for short-term goals: One of the benefits of overnight mutual funds as an investment avenue is in the case of short-term objectives. Be it for parking extra cash or for addressing immediate monetary needs, the structure of overnight funds is tailored to cater such goals efficiently.

Liquidity: Overnight funds make their investments in securities that mature within a day, which is why the liquidity factor of these funds is very high. This ensures that if the investor has a sudden requirement for funds, these can be liquidated quickly and easily.

Easy access to funds: In today’s digital age, ease of transactions is an important factor for investors to consider. Investors can park their money in overnight funds via both online and offline modes. Additionally, redeeming these investments is a straightforward and hassle-free process. With insta redemption facility, investors can redeem Rs. 50,000 or 90% of the invested amount, whichever is lesser, instantly.

Relatively low risk: The securities in which an overnight fund invests mature within a day. This reduces the interest rate risk associated with them. The relatively low-risk profile makes overnight funds a preferred choice for conservative investors.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.