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Tata Capital > Blog > Wealth Services > What Are Overnight Funds? Should You Invest in It?

Wealth Services

What Are Overnight Funds? Should You Invest in It?

What Are Overnight Funds? Should You Invest in It?

Debt mutual funds are an excellent choice for investors who are looking for steady returns and low risk. But what if you want a fund that is less volatile, brings decent returns, and is highly liquid? Seems too good to be true, right?

Look at overnight funds. They are a type of debt mutual fund scheme that are quite the rage these days. Only a couple of years old, it is a new investment that lets you invest in debt MFs and enjoys high liquidity by investing in overnight securities.

Simply put, it is a liquid form of a debt fund. Although, investing in newer securities often comes with certain apprehensions. So, let’s understand what overnight funds are and whether one should invest in them.

What are overnight funds?

Overnight funds are a type of debt mutual funds that give a solid return by investing in assets with a residual maturity of one day. Here, the fund manager invests in overnight securities that mature on the next business day. This means that overnight funds not exposed to default risk or interest rate risk like other debt MFs, making them a highly safe investment choice.

Are overnight funds safe to invest in?

Now, an overnight fund lets you make money with relative ease because of its design. It is an open-ended fund where securities mature every day and the fund manager uses the proceeds to buy fresh funds the next day. It is because of this that it gets the name “overnight”. Furthermore, they also offer high liquidity wherein the funds invested can be turned to cash in no time. 

So why would you invest in such a scheme? The answer is simple. If you’ve got ready access to cash sitting around, you can use it to increase your corpus. Furthermore, the risks are also less because the maturity is only a single day, unlike other debt funds, making it a more attractive option. 

Investing in overnight funds

Now that you know that overnight funds are a highly safe investment choice, the next step is to know how to invest in them. Due to the risks being low, it means that the returns are comparatively lesser. So, here’s what you should consider before choosing to invest.

1. Investment goals

While your generic goal might be to make more money, having a specific goal helps to see if overnight funds are the right choice for you or not. For example, if you have been looking at a long-term investment horizon, then you might want to pick a different security than an overnight fund. On the other hand, if you have short-term goals, such as saving up to buy a car, this investment can make you more money. 

2. Assess the past performance of the overnight fund

While past performance may not predict future performance, it can still be a good way for you to figure out how the fund works. Investors generally prefer reliable and stable funds to offset their risk, so an overnight fund with a stellar performance can be a good place to start. 

Get Started With Overnight Funds

Before you go ahead and invest through an intermediary, you should know that it’s essential to choose a good institution too. That’s why Tata Capital Wealth can help you with your investments. The platform lets you choose the best overnight fund based on your needs and goals. So, get in touch with Tata Capital Wealth to make your overnight fund investment an easy one!

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