Overnight funds are a type of open ended debt mutual fund schemes that invest in debt securities which mature the next day. These funds only invest in CBLOs, overnight reverse repos, and other debt or money market securities that mature in one day. Overnight funds make your money work for you while you sleep and aim to deliver stable returns in a short time interval. To enable the fund to function a mutual fund manager has to sell the maturing securities in the fund portfolio every day and uses the profits to buy new securities for the portfolio maturing the very next day in accordance with SEBI standards, which mandates them to invest only in assets with overnight maturity. Overnight mutual fund schemes are not allowed to invest in deposits or risky debt instruments and hence this approach reduces the risk of default in their bond portfolio. For this reason some investment advisors in Mumbai, India recommend these schemes for investors who want to keep money with the least amount of risk and with minimal returns.
Overnight funds are the safest category of debt funds available and as a mutual fund investor you may purchase these overnight mutual funds in order to keep any cash surplus that is not needed for a couple of days. All mutual funds are risky however the risk of incurring a loss in these funds is negligible however they do not promise returns or security of capital. As these funds are designed to deliver only marginally higher returns than your bank account; overnight funds produce stable returns but may not be ideal to build wealth over the long term. Mutual fund investors should judiciously select the top funds with a stable record, good performance, low fees and should engage with a financial advisor if needed. Investors who purchase overnight funds have to compromise on earnings in exchange for safety and liquidity and hence this sort of investment strategy should be consistent with the investors financial goal and objectives.
An investor in an overnight mutual fund can hold her or his funds for as long as needed. Using our digital apps or web portal it is very simple to enter and exit this investment while earning safe, market‐linked returns for the duration of the investment. Since overnight mutual funds carry the minimum risk, conservative and new mutual fund investors can try out this type of mutual funds before putting their money into any other riskier types of funds. Overnight funds are suitable for keeping your money for just a few days to earn some quick interest, while having the capital readily available and accessible at the click of a button since overnight funds offer the highest liquidity.
You can invest in these funds for just a single day or longer depending on your financial requirements. However from a taxation point of view keep in mind that they are similar to other debt mutual funds, and if kept for more than three years are eligible for long term capital gains tax through indexation. If overnight debt funds are sold before three years, as an investor you will have to pay tax according to your tax bracket.
The information, analysis and opinions expressed herein are for educational purposes only and are not intended to provide specific advice or recommendations for types of overnight mutual fund schemes. This material is not an offer, solicitation or recommendation to purchase any financial products or services or overnight mutual funds. Always remember that all investments, including overnight mutual fund investments carry some level of risk, including the potential loss of principal invested.