Are overnight funds a stable investment option?

Are overnight funds
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Overnight funds have become increasingly popular, especially among conservative investors who prioritise relative stability and liquidity. An overnight fund is a type of debt mutual fund that invests in securities maturing in one day. This means that the fund buys securities with 1 business day maturity, ensuring the investment is very short-term. These funds are known for their low-risk profile and are often seen as a relatively stable place to park surplus funds.

  • Table of contents
  1. Key features of overnight funds
  2. Are overnight funds risky?
  3. FAQ

Key Features of Overnight Funds

Overnight funds are known for their extreme short-term investments. The securities they invest in, typically government securities or treasury bills or TREPS, mature in just one day. This unique feature provides the dual benefit of low market risk and high liquidity. The fund's value remains relatively stable, making it a less risky option compared to other types of mutual funds.

Let’s take a closer look at some features of overnight funds:

  • Relative stability: Overnight funds invest in high-quality securities with the lowest risk. The short maturity period of these investments means the fund is less affected by interest rate fluctuations, making them a relatively stable investment choice.
  • Liquidity: These funds offer high liquidity, allowing investors to withdraw their money quickly, usually within a day. This feature makes overnight funds a suitable option for parking surplus cash that might be needed at short notice.
  • Short-term investment horizon: The most defining feature of overnight funds is their investment horizon. These funds invest in securities that mature in just one day, the shortest maturity period in the debt fund category. This very short-term strategy significantly reduces the market risk typically associated with longer-term investments.
  • Low interest rate risk: Overnight funds are almost immune to interest rate risks. Because the investments are for a very short duration, fluctuations in interest rates do not significantly impact the fund's value. This contrasts with longer-duration debt funds, where interest rate movements can significantly affect returns.
  • Low volatility: Due to the very short investment horizon, the Net Asset Value (NAV) of overnight funds remains relatively stable. These funds are not subject to the volatilities seen in the equity markets or even in longer-duration debt funds.
  • Suitability for diversification: While overnight funds may not offer high returns, they are suitable for diversifying a portfolio. By including a low-risk, relatively stable-return option like an overnight fund, investors can balance out the higher-risk components of their investment portfolio.

Are overnight funds risky?

This is a question commonly asked among investors. Overnight funds are among the least risky mutual fund investment options. Their investment in relatively stable, short-term instruments mitigates the risk of loss, making them suitable for conservative investors. So, the next question that an investor might ask is – are overnight fund investments risk free? While no investment can be entirely risk-free, overnight funds come fairly close. The risk of capital loss is minimal due to the short maturity of the securities. However, it is important to note that they do not guarantee returns, and their performance is subject to the prevailing interest rates.

The Bajaj Finserv Overnight Fund is an open-ended debt scheme focusing on overnight securities. It aims to offer a reasonable return potential with low risk and high liquidity, aligning with the objectives of stability and liquidity. This fund primarily invests in securities with a maturity of one business day, addressing the concerns of investors looking for low interest rate and credit risks. For a detailed scheme information, click here.


Overnight funds stand out as a relatively stable investment option, especially for those seeking liquidity and minimal risk. They can be suitable for parking short-term surplus cash, with the added advantage of providing modest returns. For investors looking to diversify their portfolio or those new to mutual funds, overnight funds offer a relatively stable starting point.


What makes overnight funds different from other mutual funds?
Overnight funds invest in securities that mature in one day, offering high liquidity and minimal risk compared to other mutual funds.

Can overnight funds be used as an emergency fund?
Yes, due to their high liquidity and stability, overnight funds can be a suitable choice for an emergency fund.

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 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.