Overnight mutual funds are the type of Debt Mutual Funds that provide investors with a highly liquid investment option. They invest in very short-term debt instruments, typically maturing in one business day. This translates to low risk and immediate access to your funds, making them ideal for parking short-term savings or emergency funds. While returns are modest, they offer a potential advantage over traditional savings accounts.
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Risk-averse investors
Overnight funds offer very low risk due to their short-term investments. This makes them suitable for investors who prioritize capital preservation over high returns.
Investors with short-term goals
If you're saving for a short-term goal like a vacation or down payment, overnight funds can be a good option. You can easily access your money when you need it, while potentially earning a bit more than a traditional savings account.
Those with emergency funds
Overnight funds are a good way to keep your emergency fund readily available while still earning a small return.
Here are the key advantages of investing in overnight mutual funds
High Liquidity
This is the biggest perk. You can easily withdraw your money whenever you need it, similar to a savings account. There are typically no exit loads, allowing for quick access to your cash.
Low Risk
Overnight funds invest in very short-term debt instruments, typically maturing in a single day. This minimizes the risk of interest rate fluctuations and defaults, making them one of the safest debt fund options.
Modest Returns
While the returns won't be sky-high, they can potentially outperform traditional savings accounts. This allows you to earn a small bit of extra income on your idle cash.
Flexibility
Overnight funds offer great flexibility for your cash management strategy. You can invest any amount you have on hand, even small sums, and easily withdraw it later.
Parking Place for Short-Term Savings
Overnight funds are ideal for parking your money meant for short-term goals like a vacation or down payment. They keep your funds readily available while potentially generating some returns
Emergency Fund Management
They can be a secure way to store your emergency fund. You'll have quick access to the money in case of an emergency, while still earning a bit of interest.
While overnight mutual funds offer several advantages, there are also some limitations to consider
Low Returns
Since overnight funds invest in very low-risk securities, their potential returns are also on the lower end compared to other debt funds or equity investments. They might not outpace inflation, meaning the purchasing power of your money could decrease slightly over time.
Not Ideal for Long-Term Goals
Overnight funds are best suited for short-term investment horizons. If you have long-term goals like retirement planning, you might want to consider options with the potential for higher returns, even if they come with some additional risk.
Tax Implications
The returns from overnight funds are taxed as short-term capital gains if held for less than 3 years in India, which can be slightly less tax-efficient compared to long-term capital gains from other debt funds.
Management Fees
Like any other mutual fund, overnight funds also come with expense ratios that cover management fees. While typically low, these fees can eat into your already modest returns.
Not a Substitute for a Savings Account
While overnight funds offer some advantages over traditional savings accounts, they shouldn't be considered a complete replacement. Savings accounts might still be useful for everyday transactions due to features like debit cards or check writing, which aren't typically available with overnight funds.
Now that you have understood what is Overnight mutual fund, you need to know how easily you can start your investment with INDmoney. Just follow these simple steps given below, to start your mutual fund investment journey with us.
Step 1
Download the INDmoney app and create your free investment account by completing your KYC ( Know Your Customer).
Step 2
Once your Free investment account is ready, you can either search for a Overnight mutual fund or go to the mutual fund section and tap on Overnight mutual funds.
Step 3
Choose a Overnight Mutual Fund by looking at aspects like past returns, volatility, downside capture ratio, AUM, Expense ratios and underlying stocks and sectors.
Step 4
Step 5
Choose the amount that you want to invest as SIP or LumpSum.
Step 6
Set up payments. If you choose to set up SIP in Overnight mutual funds, you can do a free automatic pay set up via bank mandate or UPI. If you choose to invest in lumpsum (one-time) then you can pay via UPI, netbanking, NEFT or RTGS.
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