All you need to know about overnight funds

what is overnight fund
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Imagine you have received your annual bonus and have some surplus money in your bank account. Before you spend the money, you want to park it for a few days, earn some potential return on it, and yet have easy access to it. So, what do you do? You can put that money into an overnight fund, which is a type of mutual fund that invests in overnight securities.

An overnight fund can be thought of as a piggy bank where you can put your money for a short period, such as a day or a few days. Just like how you can take out money from a piggy bank easily whenever you need it, an overnight fund is also very liquid and allows you to redeem your money quickly whenever you need it.

Purpose of overnight funds

Overnight funds offer investors the opportunity to invest their surplus cash instead of leaving it in a savings account. The short investment horizon makes it a relatively low-risk investment since overnight funds mature in just one day. And the good part is that these funds are highly liquid investment securities and can be redeemed quickly.

How do overnight mutual funds work?

Overnight funds are open-ended debt funds that matures the very next business day. According to the Securities and Exchange Board of India (SEBI), overnight mutual funds can invest in low-risk assets such as debt and money market securities, overnight reverse repos and so on.
These funds invest in assets that mature in a day. The fund manager uses the proceeds each day to buy a fresh set of debt securities for the portfolio maturing the very next day. This continues like a cycle since proceeds from one day are used to buy securities for the next day.

In addition, overnight mutual funds earn through interest payments on their debt holdings. Moreover, minimum credit risk and low interest risk make overnight funds suited to most investors as short term investment avenue.

Advantages of Overnight funds

Here are some of the main advantages of an overnight fund: Reasonable returns: Overnight funds are relatively low risk and provide reasonable returns as compared to traditional banking products. They can be included in your portfolio to add some relative stability and balance. Low cost: Overnight funds offer a lower expense ratio than other mutual funds since debt assets do not require active management. To learn the specifics, you must constantly consult the scheme information documents. Low risk: These funds invest in securities that have a residual maturity period of one day with up to 5% allowed in Government securities and/or Treasury bills with residual maturity of up to 30 days for margin purpose. Thus, they fall into the low-risk investment category on the riskometer. Also, as they have a short investment horizon and invest in debt and money market securities, overnight funds have low credit risk, interest rate risk and default risk.

Who should invest in overnight funds?

Now that you know the overnight fund meaning, you may be wondering who should consider investing in overnight funds. Here are the types of investors who can benefit from investing in overnight funds:

  • Overnight funds can be considered one of the types of debt funds with relatively low interest rate risk and relatively low credit risk to invest in. This makes them suitable for conservative investors.
  • Investors who are building a corpus for a large investment or other purposes can park their money in overnight funds to grow at a reasonable rate.
  • Investors who are looking for an investment avenue that can be liquidated quickly must opt for overnight funds since there is no entry or exit load and, as the name suggests, the funds mature overnight.

What to consider before investing in overnight funds?

Most people who understand ‘what is overnight mutual fund’, are interested in investing their money in them. However, here are some factors investors must consider first:

  • Low returns: By now you know what is an overnight fund and the fact that it matures the next day. This makes it a relatively low-risk investment. However, this also means that it offers low returns. Thus, your investment in overnight funds must align with your financial goals.
  • High liquidity: While it’s good to opt for an investment that can be redeemed quickly, some investors may find it difficult to keep their investments intact in times of uncertainty. They may take decisions based on their emotions instead of evaluating their investment plans.
  • No entry and exit load: Unlike liquid funds and other types of debt funds, there is no entry or exit load on overnight funds. They can be a suitable option for low-risk investments in the short term for most investors.
  • Immune to market volatility: The extremely short-term horizon of overnight funds makes them relatively immune to factors that usually affect the market including RBI interest rate changes, credit risk, etc.

How are overnight funds taxed?

Overnight funds are taxed as debt mutual funds. Here’s the detailed information on debt funds taxation.

If you have never invested in overnight funds or mutual funds, you can get started with as little as Rs.1,000. Since the investment in an overnight mutual fund is essentially for only one business day, the risk associated with the investment is negligible. Slowly, you will gain the confidence to invest any surplus cash into overnight funds to earn considerably more than parking it in a bank account. In short, an overnight fund is like a piggy bank where you can park your money for a short duration and earn reasonable return while keeping your money easily accessible.

You can consider investing in Bajaj Finserv Overnight Fund. Easy access to funds, suitability for short-term goals, relatively stable returns, high liquidity, and comparatively low risk are some of the benefits of investing in Bajaj Finserv Overnight Funds.


To sum up, an overnight fund is an investment option that offers investors "low risk, relatively stable returns, and high liquidity." Overnight funds can be suitable for most investors due to the low credit risk, default risk, and interest rate risk they carry. You can benefit from the short investment horizon and possibly earn by investing in overnight funds as opposed to leaving money in your bank account.


What is overnight fund and what are the benefits of investing in overnight funds?
Overnight funds invest in short-term debt instruments with a maturity of one day. Some of the benefits of investing in overnight funds include high liquidity, relatively reasonable returns.

What should invest in overnight funds?
Overnight funds can be suitable for investors with a short-term investment horizon and a low-risk appetite who seek to earn reasonable returns.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.