What is an Overnight Mutual Fund?

What is an Overnight Mutual Fund?

Overnight mutual funds are open-ended debt funds that invest in debt instruments with a maturity of one day. The securities in the portfolio will mature every day, and the manager will use the money to buy new securities with the same maturity date as the ones from the day before. Because the securities in these funds mature the next day, they are not as risky as other debt funds.

The objective of overnight funds is to give investors more options for making smart use of the cash they have on hand. An investment in an overnight mutual fund is ready to be taken out after just one day. With such a short time frame, investors can do more with their extra money. Due to the short investment horizon and quick maturity, the funds don't have to deal with long-term risks.

Where do Overnight Mutual Funds invest?

  • Fund managers aim to keep using the cash amount to purchase overnight securities daily, and the cycle continues. As the securities in these funds mature the very next day, these funds do not get exposed to any interest rate risk or risk of default as is present in the rest of the debt funds. However, a lower risk factor means they also offer low returns.
  • Overnight funds will invest your money in different debt securities with a maturity of just one day. According to SEBI regulations, overnight mutual funds cannot invest in financial instruments having a maturity period of more than a single day.
  • The portfolio of these funds will change daily as the underlying securities keep maturing the following day. New securities will consistently keep replacing old ones each day. In other words, when the debt instruments in a fund's portfolio mature overnight, your fund manager will replace them with fresh overnight securities. The AUM (Assets Under Management) may rise slightly because of the interest payment from these securities.

How Do Overnight Funds Work?

  • The Securities and Exchange Board of India (SEBI) rules say that these funds can only be used to buy products with a maturity date of one day. Because of these limits, the investor's portfolio default risk is cut down. This is because there is a low chance that interest payments won't be made on securities that mature in one day.
  • The way overnight money can earn anything is by being paid back with interest on loans. This happens when the people in charge of overnight funds buy short-term assets with a one-day maturity. The fund manager invests the securities due in more overnight securities.

Who Should Invest in Overnight Funds?

  • Short-term investors

    Overnight funds are best for investors who plan to keep their money for less than a week. This is because investors can get their money out of the funds in as little as one day. Overnight funds give this liquidity, but it is not given by liquid funds, which charge a fee for withdrawals made within seven days.

    Risk-averse investors

    An overnight fund may be the answer you've been looking for. You can slowly and steadily transfer to an equity fund from these funds. If investors buy stocks slowly and steadily over time, they might avoid the risks of making a big purchase all at once.

    Before investing in overnight funds, you should understand that the returns may not be the best with overnight funds. Cost ratios and returns vary a lot between market funds. Investors should look at the market carefully and choose funds that are low-cost and do well.

    An investor's investment in an overnight fund should align with their financial goals and strategy, not react to recent credit defaults. Some money should be put into an overnight fund, but not all of it to avoid risk.


  • What is an Overnight Mutual Fund
    What is an Overnight Mutual Fund
    What is an Overnight Mutual Fund

How are Overnight Funds Taxed?

  • Like a debt fund, the overnight fund has to pay taxes. Units of an overnight fund that have been held for less than three years are taxed as short-term capital gains. Investors will have to pay taxes based on their respective tax slabs. The long-term capital gains (LTCG) tax rate is 20% for overnight fund units held for more than three years. Investors can take advantage of indexation, which is one of its benefits.
  • Overnight funds are investment options for people who want to invest their idle money reserve for a very short period. Make sure to find the overnight funds that suit your investment objectives. Consider the fund's past performance and your fund manager's track record. Looking to start investing right away? Then, LIC MF Overnight Fund - (An open-ended debt scheme investing in overnight securities) (A Relatively Low Interest Rate Risk and Relatively Low Credit Risk)may be your choice!

“Visit here https://licmf.info/KYCredressal to learn more about KYC requirements, SEBI Registered Mutual Funds and Grievance redressal.”

Disclaimer: The views expressed herein are based on internal data, publicly available information and other sources believed to be reliable. Any calculations made are approximations, meant as guidelines only, which you must confirm before relying on them. The information contained in this document is for general purposes only. The document is given in summary form and does not purport to be complete. The document does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. The information / data herein alone are not sufficient and should not be used for the development or implementation of an investment strategy. The statements contained herein are based on our current views and involve known and unknown risk and uncertainties that could cause actual results, performance, or event to differ materially from those expressed or implied in such statements. Past performance may or may not be sustained in the future. LIC Mutual Fund Asset Management Ltd. / LIC Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investment made in the scheme(s). Neither LIC Mutual Fund Asset Management Ltd. and LIC Mutual Fund (the fund) nor any person connected with them, accepts any liability arising from the use of this document. The recipients before acting on any information herein should make his/her/their own investigation and seek appropriate professional advice and shall alone be fully responsible / liable for any decision taken on the basis of information contained herein.

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.

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