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Overnight Mutual Funds: All You Need to Know

By Prabhat Singh - Jun 7,2022
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Accumulating secured finances is one of the essential instruments in wealth management. Various investments like stocks, FD, RD, gold, bonds etc., help you achieve your aim. One such investment is mutual funds, a pool of investors’ money invested in various pool securities. Usually managed by a fund manager, the performance of mutual funds is entirely market-dependent, which makes them riskier.

However, one mutual fund miles away from the market risk is Overnight Mutual funds. It is considered one of the safest mutual funds. If you are entering the market for the first time, understand the basics of mutual funds by investing in an overnight mutual fund rather than falling prey to high returns and high risks.

Also Read: ETF vs. Mutual Funds: All You Need to Know

What are Overnight Mutual Funds?

An overnight fund is a debt fund that gets matured in a day. These are open-ended debt schemes majorly invested in bonds. It means that the funds you buy in the morning mature the next day, and the fund managers then use those proceeds to buy new funds. 

Unlike other funds, overnight funds do not get entirely exposed to market or interest rate risks. Hence, the fund offers a low return. 

Why should you consider investing in Overnight Mutual Funds? 

Anyone who intends to invest their corpus of money without fear of risking it and is ok getting low returns should ideally invest. Also, if someone is building an emergency fund for unprecedented medical emergencies, they can invest in the overnight mutual fund. 

In any case, these funds provide more returns than a savings deposit of a bank and therefore, instead of putting your money in the bank, you can invest it in overnight mutual funds. 

Advantages of Overnight Mutual Funds 

As mentioned above, the fund does not pose any risk like various other mutual funds, and to add on, here are some other benefits of overnight mutual funds: 

1. Use of Idle Money

The surplus of money going unused or kept in bank accounts which fetches you low returns can get invested in overnight mutual funds. It has comparatively better returns with minimum risk, making this investment valuable. 

2. Safest of Them All

The change in interest rates by RBI or regular fluctuation due to foreign factors has almost no effect on the overnight funds. The short maturity period keeps them unaffected by any market volatility. 

3. Easy Liquidity

Since the funds mature overnight, they have high liquidity, conferring overnight mutual funds desirable during financial emergencies. These funds are also known as the most liquid investment securities. 

4. Risk-averse Investment

Due to less risk involved and an investment horizon of a single day, overnight mutual funds are highly likely to avoid all the market adversity. 

Things to keep in mind before buying Overnight Mutual Funds

Overnight funds are tantalizingly clear for some to invest in as it is one of the safest forms of investment. However, before you put your money into these funds, here are some key things to consider: 

1. Low Returns 

Overnight funds are extraordinarily little prone to risks which makes them the safest investment securities; however, it also means that the returns on your investment are truly a little lesser. These funds are usually a no profit, no loss scheme. Therefore, if you seek higher returns on your investments, the overnight funds are not ideally suitable.

2. Alignment of Financial Goals 

One of the crucial aspects of any investment is it should be consistent with whatever financial aim you want to achieve. While the overnight funds have insignificant risk involved, the returns are scant. Therefore, before you shift all your investment to these funds, try to relook at your goals and then decide. 

Investment is a wealth creation tool, and the factors mentioned above make overnight funds an appealing investment option. However, in order to avoid the risk involved, try not to compromise on your financial goals. Choose wisely and accordingly to accumulate corpus.

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