Overnight funds: A preferred investment option amidst market swings

advantages of overnight funds
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Overnight funds offer investors a unique opportunity in the world of finance. These funds are designed to take advantage of short-term investment windows of 1 day to deliver a relatively steady return potential while reducing the risk exposure. Here, we will shed light on overnight funds, understand their objectives, features, and the advantages of overnight funds for investors. Also, we will take you through the new Bajaj Finserv Overnight Fund and evaluate its suitability for investors.

  • Table of contents
  1. What are overnight funds?
  2. The objective and features of overnight funds
  3. Benefits of overnight funds
  4. Bajaj Finserv Overnight Fund
  5. Who should invest in overnight funds?
  6. FAQ

What are overnight funds?

Overnight funds belong to the category of debt mutual funds, which are known for their relatively low-risk profile and very short-term nature. These funds invest primarily in securities like tri-party repo (TREPS), government repo/ reverse repo (in government securities), treasury bills, and other money market instruments with extremely short tenures, typically maturing within one business day. The primary goal of overnight funds is to mitigate impact on capital while providing a level of return prevailing for 1 day maturity. These features make overnight funds the ideal choice for investors seeking both relative stability and liquidity.

The objective and features of overnight funds

Mitigate impact on capital: The main objective of overnight funds is to mitigate the impact on capital from market fluctuations and potential credit risks. By investing in high-quality, short-term instruments, overnight funds minimize the exposure to market volatility and credit defaults.
Minimal interest rate risk: Overnight funds are structured to carry minimal interest rate risk as the underlying securities have very short maturities. Since overnight funds have brief investment horizons, they are less sensitive to interest rate movements compared to long-term debt funds.
High liquidity: The liquidity aspect of overnight funds is unparalleled, allowing investors to redeem their units and receive the redemption amount within one business day. This feature makes overnight funds an attractive choice for those who require quick access to their funds without facing significant exit hurdles.
Low expense ratio: Overnight funds typically have lower expense ratios compared to other mutual fund categories. Since they have a shorter investment horizon and fewer active management requirements, the associated costs are lower.
No exit load: Most overnight funds do not charge any exit load. The “load” is a fee charged by some mutual funds when investors enter or exit the fund, and the absence of such fees ensures that investors can deploy their capital without incurring any additional expenses.

Benefits of overnight funds

Relative Stability and less volatility: One of the primary benefits of investing in overnight funds is their relative stability and less volatility. As these funds invest mainly in high-quality, short-term instruments, the risk of default is minimal.
Ideal for short-term goals: If you have short-term financial goals that require liquidity and low risk to capital invested, overnight funds can be a suitable choice. Whether it's an emergency fund, upcoming expenses, or planned expenditures, overnight funds can provide a relatively stable avenue to park your funds temporarily.
Diversification and professional management: By investing in overnight funds, investors gain access to a diverse portfolio of short-term instruments, which are professionally managed by experienced fund managers. This diversification further mitigates risk and potentially enhances the overall performance of the fund.
Ideal for corporates and institutions: Investing in overnight funds is not restricted to retail investors; these funds are also popular among corporates and institutions. Many entities often have surplus funds that they wish to park for a short period, and overnight funds serve this purpose effectively.

Bajaj Finserv Overnight Fund

Bajaj Finserv AMC has launched Bajaj Finserv Overnight Fund. This fund is suitable for investors who seek regular income over the short term that may be in line with the overnight rates. However, it is always advisable that investors consult a financial expert if in doubt about any investment avenue.

Who should invest in overnight funds?

Conservative investors: Risk-averse investors who prioritize less volatility over high returns can find overnight funds as a good fit for their investment strategy. These funds seek to offer a balance between relative stability and relatively steady growth.
Short-term financial goals: If you have short term financial goals with – overnight funds can be a suitable choice.
Institutions and corporates: Corporate entities with surplus funds can deploy them in overnight funds to maintain liquidity while earning a potentially reasonable return.

With their relatively stable returns, and high liquidity, overnight funds serve as a preferred choice for conservative investors, those with short-term financial goals, and even institutional investors seeking a reliable avenue to park their surplus funds.


How do overnight funds compare to liquid funds?

Both funds are short-term debt mutual funds which provide liquidity to the investors. The difference is in the maturity of underlying instruments that these funds invest in. Overnight funds invest in securities with a maturity period of 1 day, but liquid funds invest in securities with a maturity period of 91 days.

What are the costs associated with investing in overnight mutual funds?

Just like other mutual funds, investing in overnight mutual funds involves expenses such as administrative costs, fund management fees and other operational expenses. The expense ratio is then deducted from the fund’s return.

Is there any minimum investment amount for overnight funds?

There minimum investment amount may vary across different mutual fund houses. It is advisable to compare such factors before making an investment decision.

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.