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What are overnight funds? Who should invest in this?

by Shatakshi Gupta

Mutual funds have registered a stellar growth in the past few years. Now, retail investors are dominating the market. The issue, however, is that investors often make investments without knowing much about the funds. For best returns, you must understand the difference between various funds and choose as per your risk appetite. Today, in this article, we will understand Overnight funds, which are considered the safest among all mutual funds. These funds have their own utility. Let’s understand.

What are Overnight Funds?

Overnight Funds are a sort of open-ended debt fund that invests in debt instruments with a single-day maturity. In other words, assets in your portfolio mature every day, and the fund manager invests the proceeds in new securities for the portfolio’s next maturity date. Because the securities in these funds mature the next day, they are not subject to equal interest rates or default risk as other debt funds. Due to a low-risk profile, they also give the lowest return as compared to other mutual funds.

Ideal for whom?

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The securities in these funds mature on the next day, so these funds do not come with interest rate risk or default risk like other debt funds. But these low-risk funds also give low returns, i.e between 3 and 4 percent annually.

Overnight funds are suitable for big entrepreneurs who need an option to invest large sums of money for a very short period of time. The money huge capital they hold remains idle until it can be invested elsewhere. These funds do not have any exit load, which makes them ideal for very short-term investment.

 Besides, the surplus cash can be invested in overnight funds and get some returns, even if it is only for a few days. These are also good for building an emergency fund if you want to keep some money aside for emergency needs. Your money may get some growth while investing.  These funds also provide the highest liquidity.

Also read: PPF, GPF, VPF, and EPF! Know the difference between 4 types of Provident funds

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