Overnight Funds

Overnight Funds

Overnight funds are a type of mutual fund that invests in securities with a maturity period of one day, meaning they are highly secure and can provide instant returns with a high level of liquidity. They are a new type of debt mutual fund introduced in 2018. Investors who are risk-averse and want to invest in debt mutual funds for a very short period of time can invest in overnight funds. 


Overnight Mutual Fund Meaning

Overnight mutual funds are investment vehicles that invest in debt and money market instruments that mature in one business day. The money you invest today will typically be invested for a single day, and the maturity proceeds will be available the next business day.

Such short-term investments are ideal for investors who park their surplus funds safely, with liquidity as a key feature. 

For example, an investor with a surplus of ₹10 lakhs might put this amount into an overnight fund for short-term needs, reaping benefits from interest without locking their funds for an extended period. At Alice Blue, we offer a range of overnight funds suitable for all types of investors.

Overnight Funds Example

Let’s take an example to understand overnight funds better. Assume that you have ₹2 lakhs that you wish to invest in an overnight fund with a net asset value (NAV) of ₹1000. When you invest your money, you will receive 200 units of the fund (₹2 lakhs/₹1000). Suppose the next day, the NAV rises to ₹1001. Your investment value will then be ₹2,00,200 (200 units * ₹1001). This shows how overnight funds can provide small but quick returns.

Overnight Funds – Advantages 

The advantage of investing in overnight funds is that it provides the opportunity to invest the idle cash lying in the bank accounts for one day. It means that it also provides the chance to invest a sum of money for emergency use. 

The advantages offered by overnight funds are: 

1. Low risk: These funds invest in debt securities with an investment period of just one day, which means that it carries a lower interest rate risk or default risk. The interest rate risk is the risk of falling returns the instruments provide. The default risk is the risk that these instruments do not provide returns. 

2. Changing portfolio: The portfolio allocation in these funds continuously changes every next day, so the fund manager always tries to invest in the debt instruments that can provide the best returns. 

3. No exit load: The overnight funds are an open-ended mutual fund scheme, meaning it is easy to redeem the investment and does not charge any exit load.

4. Flexibility in holding period: There is complete flexibility in terms of the holding period as these funds can be held for one day.

5. Low expense ratio: The expense ratio, which is the total cost of investing, is very low in the overnight funds and ranges from 0.5% to 1%.

6. Best for corporates: The overnight funds are best for the corporates holding their surplus cash or working capital in the current accounts. This way, they can earn some returns on the ideal funds.

7. Ideal for first-time investors: Overnight funds are ideal for first-time investors just looking to start their investment journey with mutual funds. Later, the money can be transferred to other debt or equity funds through systematic transfer plans (STP). 

8. Shielded from market volatility: The returns or interest-earning provided by the overnight funds are not affected by the changes in the interest rate made by RBI or the changes in the credit rating of the debt instruments. Hence, they are shielded from any uncertainty of market volatility and have a no or low credit risk. 

Overnight Funds Taxation

Taxation on overnight funds is treated as per debt mutual fund taxation rules in India. 

  • If you hold your investment for less than three years, the gains are added to your income and taxed as per your tax slab. 
  • For instance, if you invested ₹1 lakh in an overnight fund and gained ₹10,000 within a year, this ₹10,000 would be added to your yearly income and taxed accordingly.

How To Invest In Overnight Funds?

You can invest in overnight funds by opening a mutual fund account with a registered stockbroker. The steps to follow to invest in overnight funds are: 

1. Open an account online with a SEBI-registered stockbroker such as Alice Blue by submitting the PAN and Aadhar card details.

2. You must provide your details, such as name, phone number, email address, etc., and complete the KYC process, which can be done online.

3. Login into your Demat or mutual fund account through the credentials provided by the stockbroker. 

4. See the complete list of overnight funds and select the one based on the ratio and technical analysis.

5. Invest in them using either a SIP or lump sum method. 

6. Click “OK,” and the amount will be debited from your linked bank account, and the units of the overnight fund will get credited to your Demat account at the applicable NAV. 

Best Overnight Funds

Identifying the best overnight funds depends on the individual investor’s requirements and risk profile. It’s essential to research and analyze past performance, fund manager’s expertise, and the fund house’s reputation before investing.

S. No. Fund NameAUM NAV 1-month Returns 3-month Returns 6-month Returns 1-year Returns 3-year Returns 
1.HSBC Overnight Fund ₹2,854 crores₹1,183.790.51%1.59%3.17%5.88%4.14%
2.Mirae Asset Overnight Fund₹323 crores₹1,159.860.51%1.59%3.18%5.9%4.15%
3.PGIM India Overnight Fund₹155 crores₹1,167.70.53%1.57%3.14%5.85%4.12%
4.Axis Overnight Fund₹9,283 crores₹1,196.520.53%1.59%3.18%5.9%4.12%
5.Mahindra Manulife Overnight Fund₹80 crores₹1,171.190.53%1.58%3.16%5.87%4.12%
6.Nippon India Overnight Fund₹7,773 crores₹121.480.53%1.59%3.17%5.89%4.11%
7.DSP Overnight Fund₹2,393 crores₹1,211.750.51%1.59%3.17%5.88%4.11%
8.LIC MF Overnight Fund₹477 crores₹1,172.760.53%1.57%3.15%5.87%4.1%
9.UTI Overnight Fund₹6,196 crores₹3,096.710.53%1.57%3.15%5.85%4.09%
10.Aditya Birla Sun Life Overnight Fund ₹9,882 crores ₹1,223.630.53%1.59%3.16%5.87%4.1%

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Overnight Funds – Quick Summary

  • Overnight funds are the type of debt mutual funds that have a maturity period of just one day.
  • Overnight mutual funds invest the sum corpus into short-term debt instruments such as CBLOs, reverse repos, treasury bills, CDs, CPs, etc. 
  • An example of overnight funds is the investment made in any fund at the applicable NAV through the SIP or lump sum method.
  • The advantage of overnight funds is that they allow investors to invest for a short period and do not carry an interest rate or default risk. 
  • The income earned from the overnight funds is taxed according to the investors’ income tax slabs, whether an STCG or LTCG.
  • The investment can be made in overnight funds through the Demat account that can be opened online with a registered stockbroker. 
  • Some of the best overnight funds are HSBC Overnight Fund, Mirae Asset Overnight Fund, PGIM India Overnight Fund, etc. 

Overnight Funds – Frequently Asked Questions

1. What is an overnight fund?

An overnight mutual fund is a type of debt fund that invests the amount collected from various investors having a maturity of one day. 

2. Are overnight funds profitable?

Yes, overnight funds can be profitable because they only provide the interest earnings from the invested debt securities and generally do not carry a risk of default. 

3. What is the risk in overnight funds?

Overnight funds carry very low risk due to their ultra-short investment horizon and the nature of securities they invest in, typically government securities and treasury bills.

4. Can I invest in overnight funds?

Absolutely, anyone can invest in overnight funds. You can easily do so using an online platform like Alice Blue, which offers a seamless investment experience.

5. Are overnight funds better than FD?

Yes, overnight funds can be better than FD for investors looking to invest their money for a very short duration because in FD, the money is locked for certain months or years.

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