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Overnight funds Vs. other short-term investments: Which one should you choose?

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When it comes to parking your surplus funds for a very short period, say a few days, overnight funds and short-term debt funds can be a good option to consider. Both these categories aim to offer similar income potential with high liquidity and low/low to moderate risk. However, there are key differences between overnight funds and other short-term debt funds that investors need to understand before selecting the right option.

This article analyses overnight funds vs other investment options to help you make an informed choice.

  • Table of contents
  1. Understanding overnight funds
  2. Understanding short-term investments
  3. Difference between overnight mutual funds vs other investment
  4. FAQ

Understanding overnight funds

Overnight funds, as the name suggests, invest in debt and money market instruments with a maturity period of a day. This makes them one of the most liquid investment options available. Since the maturity of the underlying investments is only one day, the interest rate risk for these funds is almost negligible. Thus, overnight funds can be a good option for parking funds for a very short duration, maybe a day or two, with complete liquidity.

Some key aspects of overnight funds include the below.

  • Investment universe includes liquid debt and money market instruments with overnight or 1 day maturity.
  • Aim to generate returns by investing in debt instruments like TREPS, bonds, repos, commercial papers etc. that have 1 day maturity. However, unlike savings account, the returns are not guaranteed.
  • Extremely low interest rate and credit risk due to short 1 day maturity of underlying investments.
  • High liquidity as funds can be redeemed the same day at minimal or no cost.

Understanding short-term investments

Short-term debt funds or funds with a maturity period ranging from 1 day to up to 12 months come under the broader category of short-term investments. Compared to overnight funds, these funds have slightly higher maturity profiles for their underlying investments - ranging from 1 week to up to 1 year. Some well-known categories include.

Liquid funds: Invest in debt and money market instruments with a maturity of 91 days. More liquid than other short-term funds.

Money market funds: Invest in short-term debt instruments like commercial papers, certificates of deposit etc. with up to 1 year maturity.

Ultra-short duration funds: Aim to maintain Macaulay duration between 3-6 months by predominantly investing in short-term debt securities.

Low duration funds: Have low interest rate risk due to short portfolio Macaulay duration between 6-12 months generally.

Corporate bond funds: Invest in high quality corporate debt papers. Carry slightly higher risk than other funds.

Compared with overnight funds, short term funds have slightly longer average portfolio maturities resulting in a marginally higher return potential along with relatively higher interest rate and credit risk.

Difference between overnight mutual funds vs other investment



Overnight funds

Liquid funds

Money market funds

Ultra-short duration funds

Average maturity

1 day only

Up to 91 days

Up to 1 year

3-6 months Macaulay duration


1 day




Potential returns

Savings Bank Rate + Margin

Slightly higher than Savings Bank Rate


Higher than Liquid Funds

Interest rate risk





Credit risk







To sum up, overnight funds are a suitable option if you want to park your surplus funds for a very short duration. For slightly longer timeframes, liquid funds are a better alternative. Investors need to evaluate their investment horizon; liquidity needs and risk profile to decide between overnight funds versus other short-term debt options while investing surplus money for a very short duration. You can also consider investing in the Bajaj Finserv Overnight Fund for a relatively stable return potential along with liquidity. For a detailed scheme information, click here.


What is the main difference between overnight funds and other short-term investments?
The main difference between overnight funds and other short-term investments is the maturity period. Overnight funds invest in debt and money market instruments with a maturity of 1 day, making them the most liquid between short-term options.

Are overnight funds relatively stable compared to other short-term investments?
While all short-term debt funds aim to mitigate impact on capital, overnight funds have the lowest level of risk given their extremely short overall portfolio maturity of 1 day. However, other short-term funds like liquid and money market funds that have longer average maturities still offer relative stability due to strict investment guidelines prescribed by SEBI.

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.