Understanding the characteristics of overnight funds

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Investing in mutual funds offers a variety of options suitable for different investor needs. Among these, overnight funds present a unique and flexible choice, especially for short-term investment purposes. Let’s take a closer look at the characteristics of overnight funds.

  • Table of contents
  1. What are overnight funds?
  2. Characteristics of overnight funds
  3. Benefits of investing in overnight funds
  4. FAQ

What are overnight funds?

An overnight fund is a type of debt mutual fund that invests in very short-term securities, with a one-day maturity. These funds operate on a daily cycle, buying securities for one day maturity which then expires the next day, hence the term 'overnight'. These funds are designed as a relatively stable option for investors to temporarily park their extra funds, generally for brief periods.

Thus, overnight funds offer a simple way for investors to potentially earn modest returns on funds that might otherwise remain idle, without committing to long-term investments while prioritising low impact on capital. This makes overnight funds a good choice for managing short-term financial needs or for earning potentially reasonable returns on surplus cash.

Characteristics of overnight funds

The main characteristics of overnight funds include their short-term investment nature and relatively stability with minimal risk. Here’s a closer look at the overnight mutual fund characteristics:

Very short-term investment horizon: Overnight funds are among the most short-term investments in the mutual fund category. They are suitable for investors who have surplus cash that they wish to invest for periods as short as a single day.

Low risk profile: Given their investment in securities with a maturity of just one day, these funds have a very low risk profile. This minimises the exposure to market fluctuations that are more common in longer-term investments.

High liquidity: Another key feature of overnight funds is their high liquidity. Investors can redeem their investments and access their funds on any business day, making these funds an appropriate choice for managing emergency cash needs or short-term financial goals.

Relatively steady returns: While the returns on overnight funds are typically lower compared to equity or long-term debt funds, they tend to be relatively stable and predictable. This makes them a suitable option for conservative investors or those looking to balance their investment portfolio with a low-risk option.

Interest rate risk: Overnight funds carry minimal interest rate risk. This is because the short maturity of their investments means they are less affected by changes in interest rates, unlike longer-term debt funds.

Credit risk management: Even though overnight funds are low-risk, they are not completely risk-free. They do carry a small amount of credit risk, which is the risk associated with the default of the issuer of the securities they invest in. However, fund managers typically mitigate this risk by investing in high-quality securities.

Simplicity and transparency: These funds are straightforward in their approach, investing in simple, understandable securities. This transparency is beneficial for investors who prefer clear and uncomplicated investment options.

If you’re looking to invest in an overnight fund, an option for you to consider is the Bajaj Finserv Overnight Fund. This fund is an open-ended debt scheme investing in overnight securities with a relatively low interest rate risk and a relatively low credit risk. This product is suitable for investors who are seeking regular income over a short term period that may be in line with the overnight call rates. For a detailed scheme information, click here.

Benefits of investing in overnight funds

Investing in overnight funds offers several benefits. Overnight funds are suited for those seeking a low-risk investment avenue for their short-term funds. They can be a reasonable option for managing surplus cash efficiently. Instead of leaving extra funds idle, investors can put them in overnight funds to potentially earn returns.

Secondly, because of their low-risk profile, these funds are an appropriate option for risk-averse investors who prioritise relative stability of capital. Thirdly, they are a good choice for beginners in mutual fund investment, given their simplicity and low volatility. Fourthly, overnight funds can act as a cushion in a diversified portfolio, balancing out riskier investments. Lastly, these investments can be useful for corporations or institutions to manage their short-term treasury operations effectively, ensuring that funds are not lying unproductive.


Overnight funds serve as a good investment tool for those seeking a relatively stable, liquid, and short-term option for their surplus funds. Their unique characteristics make them an attractive choice in the world of mutual funds.


How do overnight funds generate returns?
Overnight funds generate returns by investing in securities that mature the next day, adding the returns to the fund's Net Asset Value (NAV).

What is the minimum investment required for overnight funds?
The minimum investment requirement for overnight funds is generally low, making them accessible to a wide range of investors. For example, the minimum investment amount for the Bajaj Finserv Overnight Fund is Rs. 100.

Can I redeem my investment in overnight funds at any time?
Yes, one of the key advantages of overnight funds is their high liquidity, allowing investors to redeem their investment on any business day.

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.