What are the investment objectives and strategies of overnight funds?

when to invest in overnight fund
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Equity and equity-related investment instruments have always been popular because they offer a relatively higher return potential as compared to other types of investments. However, debt funds, too, have their own charm as they offer a ‘low risk, relatively stable return’ combination that helps create a good balance in any investment portfolio.
Of all the debt funds, overnight funds can be the first ones to be added to your portfolio, especially if you are just getting started with mutual funds. Let’s take a look at overnight funds in detail.

Table of contents

What is an overnight fund?

An open-ended mutual fund scheme that invests in debt securities and assets maturing the next business day is known as an overnight fund. It was introduced in 2018 by the Securities and Exchange Board of India (SEBI) after the re-classification of debt funds. An overnight fund invests in a cyclical manner – the fund manager invests in debt securities maturing in one business day and then buys a fresh set of securities from the proceeds the next day and so on.

Who should invest in an overnight fund?

You should invest in overnight funds if:

  • You are a conservative investor.
  • You have a short-term investment horizon.
  • You are looking for investment options that offer high liquidity.
  • You want to get started with investing in mutual funds.
  • You want to get better returns than traditional banking products.
  • You want to build a corpus for a large investment.

5 features of overnight funds

Here are the five main features of an overnight fund:

Low risk: Overnight funds invest only in securities that have a residual maturity period of one day with upto 5% permitted in Government securities and/or Treasury bills with residual maturity of upto 30 days for margin purpose. Therefore, they fall into the low-risk investment category on the riskometer. Since they have a short investment horizon and invest in debt and money market securities, overnight funds are exposed to low credit risk, interest rate risk and default risk.

High liquidity: An overnight fund does not have a lock-in period. You can redeem it whenever you want, and the proceeds will be credited to your account in a business day.

Reasonable returns: If you compare overnight funds with traditional banking products and mutual funds, you will realise that they are low risk and offer reasonable returns. You can add them to your portfolio to bring an element of relative stability and balance.

Low cost: Since debt holdings do not need active management, overnight funds have a lower expense ratio than other mutual funds. However, you must always check the scheme information documents to know the details.

Flexible holding period: Since overnight funds are open-ended schemes, you can enter and exit the scheme whenever you want. You can also hold your investment for as long as you need based on your investment goals.

When to invest in an overnight fund?

If you are interested in investing in overnight funds, you may be wondering: “When is the right time to invest in an overnight fund? The answer is simple – you can invest in an overnight fund as soon as you think you are ready.
While you may have to look at market conditions for investing in an equity fund or any other long-term investment, you can start investing in an overnight fund at any time. Since the underlying securities mature the very next day, your investment is never at a high default risk, interest rate risk or credit risk. On top of that, overnight funds do not have a lock-in period, so you are free to redeem your investment at any time.

Why you should invest in the Bajaj Finserv Overnight Fund

Bajaj Finserv Overnight Fund aims to provide a relatively stable return potential to investors by investing in debt and money market instruments with overnight maturity. The scheme offers a “low-risk, high-liquidity” investment option with an overnight holding period to help investors earn relatively stable returns. Investors can park surplus funds overnight or longer with an aim to generate better returns than traditional banking products at higher risk than traditional banking products to meet their short-term investment goals. Moreover, you can get started with investing in the Bajaj AMC Overnight Fund through online or offline channels with just Rs. 1,000.

To conclude, an overnight fund is a ‘low risk-relatively stable returns-high liquidity’ investment option available to investors. The minimum credit risk, default risk and interest rate risk associated with overnight funds make them suitable for most investors. With an investment in overnight funds, you can take advantage of the short investment horizon and potentially earn considerably more than parking money in your bank account at higher risk than bank account.


What is the aim of overnight funds?
Overnight funds aim to provide a relatively stable investment option by primarily investing in very short-term debt securities with maturities of one day.

How do overnight funds manage risk and safety?
These funds minimize credit risk by investing in high-quality, short-term instruments. They aim to maintain relative stability by avoiding exposure to interest rate fluctuations.

What is the typical investment strategy of overnight funds?
Overnight funds invest in money market instruments with a very short maturity, such as government securities and certificates of deposit. They aim to keep the portfolio highly liquid and relatively low risk.

What type of investor is most suited for overnight funds?
Overnight funds can be suitable for risk-averse investors seeking a relatively stable and liquid investment option. They are often used for parking funds temporarily while aiming to reduce the volatility impact on capital.

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.