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Overview
Overnight mutual funds are short-maturity debt schemes designed to invest primarily in securities that mature in one day.
Their extremely short portfolio maturity limits interest-rate sensitivity compared with longer-duration debt funds.
However, overnight does not mean guaranteed or completely risk-free.
Investors should still understand the scheme, taxation, liquidity process, and purpose before investing.
Explained
An Overnight Fund is an open-ended debt scheme investing primarily in overnight securities.
These instruments mature in one day.
This makes Overnight Funds the shortest-maturity category within the conventional debt-fund framework.
The portfolio is continually renewed because existing securities mature very quickly.
Explained
The fund invests in securities with very short maturities and continually reinvests proceeds as those securities mature.
Because the primary portfolio turns over rapidly, the fund has relatively limited exposure to changes in longer-term market interest rates.
Returns primarily reflect prevailing overnight money-market rates, less expenses and other portfolio effects.
The NAV can still move, although fluctuations are generally expected to be smaller than in longer-duration bond portfolios.
Suitability
Overnight Funds may suit investors who:
They are generally not designed to maximise long-term wealth creation.
Advantages
The defining one-day maturity reduces exposure to longer-term bond-price movements.
Because investments mature quickly, changes in long-term yields generally have less impact than they would on a long-duration portfolio.
As open-ended schemes, Overnight Funds generally permit redemptions on business days under applicable mutual fund rules.
The category has a clear focus on overnight securities.
Some investors use Overnight Funds when they want short-term parking of funds while retaining a mutual fund investment structure.
Before you invest
Because the portfolio continuously reinvests at prevailing overnight rates, the fund's return potential changes as short-term rates change.
An Overnight Fund is a market-linked mutual fund product. It is not a savings account or guaranteed deposit.
Short holding periods do not create a special tax exemption. Current debt mutual fund tax rules need to be considered even when the investment is held briefly.
Small differences in costs can matter in a category where gross yields may be relatively modest.
Check cut-off times, redemption processing, applicable NAV rules, and settlement before using the fund for money needed on a particular date.
Taxation
Overnight Funds invest predominantly in debt and money-market instruments and can fall within the current Section 50AA definition of a Specified Mutual Fund when the relevant conditions are satisfied.
For applicable units acquired on or after April 1, 2023, gains upon redemption can be deemed short-term capital gains irrespective of holding period.
They are generally taxed at the investor's applicable rate.
Investors should check current tax provisions and their individual circumstances before investing for tax-sensitive cash-management needs.
Step by step
Good to know
They primarily invest in overnight securities having a maturity of one day.
No. Their very short maturity limits certain risks, particularly interest-rate sensitivity, but they remain market-linked mutual fund investments.
Liquidity can make them relevant for some short-term allocations, but emergency funds should be planned around certainty of access, settlement timelines, bank balances, and individual needs.
Overnight Funds primarily hold one-day maturity securities. Liquid Funds can invest in eligible debt and money-market securities with somewhat longer short-term maturities.
No. Their portfolio is continually reinvested at prevailing short-term rates, so return levels can change.
Where Section 50AA applies, gains on relevant units acquired on or after April 1, 2023 can be deemed short-term capital gains irrespective of the actual holding period.
Recap
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FUND
JM Overnight Fund Direct GrowthDebt Overnight₹1256.16
0.02%
6.73%
5.73%
N.A.
Navi Overnight Fund Direct Weekly Reinvestment Inc Dist cum Cap WdrlDebt Overnight₹10.01
0.02%3.79%
N.A.
N.A.
Sundaram Overnight Fund Direct Income Semi-MonthlyDebt Overnight₹1067.45
0.02%N.A.
N.A.
N.A.
Navi Overnight Fund Direct GrowthDebt Overnight₹10.84
0.02%6.16%
N.A.
N.A.
Navi Overnight Fund Direct Monthly Reinvestment Inc Dist cum Cap WdrlDebt Overnight₹10.04
0%3.74%
N.A.
N.A.
Navi Overnight Fund Direct Daily Reinvestment Inc Dist cum Cap WdrlDebt Overnight₹10.01
0%3.04%
N.A.
N.A.
Sundaram Overnight Fund Direct Income WeeklyDebt Overnight₹1049.57
0.02%N.A.
N.A.
N.A.
Sundaram Overnight Fund Direct Income DailyDebt Overnight₹1000.03
0.02%N.A.
N.A.
N.A.
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