Overnight funds have become increasingly popular among investors seeking a safe and convenient place to park their money for a very short duration. These funds belong to the debt mutual fund category and primarily invest in securities that mature in just one day. The primary objective of an overnight fund is to provide investors with high liquidity and minimal risk, making it an ideal choice for those looking for short-term parking of surplus funds.
The key feature of an overnight fund is its one-day maturity investment strategy. Fund managers buy securities that mature the next day and reinvest the proceeds on a daily basis. Because the investment duration is so short, these funds are not exposed to interest rate risk or credit risk to a large extent. This makes overnight funds one of the safest investment options among mutual funds.
When comparing overnight funds vs. liquid funds, both serve similar purposes — offering liquidity and safety. However, liquid funds typically invest in instruments with maturities of up to 91 days, while overnight funds limit themselves strictly to one-day instruments. This difference means that overnight funds are even less sensitive to market fluctuations and interest rate changes. On the other hand, liquid funds may offer slightly higher returns due to their longer maturity profile. Investors should choose between the two based on their investment horizon and risk appetite.
In terms of returns, overnight funds generally offer moderate but stable gains, often slightly higher than a regular savings account. While they may not deliver high yields, their main attraction lies in capital protection and instant liquidity.
In conclusion, overnight funds are perfect for investors seeking a low-risk, short-term investment option that provides liquidity and steady returns. When used strategically, alongside instruments like liquid funds, they can form a crucial part of a diversified portfolio — ensuring both safety and flexibility for managing short-term financial needs.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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