Overnight Mutual Funds

Are you an investor looking for a very low risk and short term investment option? Overnight Mutual Funds can be a good avenue. These mutual funds are designed for people who want to invest their money safely for just one day or a very short period. These funds aim to give stable returns with no risk of market volatility.

Overnight mutual funds are the first choice of investors seeking liquidity, safety and better returns than a regular savings account for idle cash.

What are Overnight Mutual Funds?

Overnight Mutual Funds fall under the category of debt mutual funds where the fund managers invest in securities that mature within 24 hours. To put it in simple terms, your investment in this kind of mutual fund will be parked in such financial assets which will mature the next day.

Due to their short maturity period, overnight mutual funds are extremely safe as compared to other mutual funds.

They are commonly used for:

• Holding surplus cash
• Cash management needs
• Institutional cash management

Features of Overnight Mutual Funds

• Low Market Risk: As investments are due to mature in a single day, the risk of market fluctuation is very low.
• High Liquidity: You can withdraw your money quickly within a single day.
• Short-Term Investment: These funds are perfect for those who wish to make investments only for one day up to a few days.
• Lack of Interest Risk: Since the securities mature overnight, interest rate changes do not affect your investment much.
• Professional Fund Managers: Professional fund managers will manage your investments on your behalf. You do not need worry about the hassles related to investment
• Higher Returns Than Idling Money: It can give you higher returns than having money in a savings account or even idling in a bank.

How to Invest in Overnight Mutual Funds?

You can invest in overnight mutual funds by following simple process:

Step 1: Choose investment mode. You can invest through:

• AMC websites
• Online investment platforms provided by stockbrokers
• Mutual fund distributors

Step 2: Choose a suitable overnight mutual fund.

Step 3: Choose between Systematic Investment Plan (SIP) and Lump sum based on your goal and make investment.

Step 4: Make payment through UPI, netbanking or other available methods.

Why Invest in Overnight Mutual Funds?

Overnight funds are meant not for generating high profits but for providing security and flexibility.

• Secure Placement of Idle Cash: If you have idle money in your bank, you will earn better returns in overnight funds than savings account interest.
• Effective Management of Emergency Funds: These mutual funds are helpful when you need to manage your emergency funds anytime.
• No Lock-In Period Required: Overnight mutual funds come with no lock in period . You can redeem your investment anytime without facing any problems.

Taxation of Overnight Mutual Funds

For Fresh Investments (Purchased on or After April 1, 2023)

The concept of minimum holding period to qualify for long term tax rates has been completely abolished.

• Taxation of Capital Gains: All gains will be considered Short Term Capital Gains (STCG) irrespective of holding period, whether it is days, weeks, months, or even years.
• Applicable Tax Rate: The gains will be included in your Gross Total Income and taxed as per your slab rate.
• Indexation Benefits: Indexation benefits will not be available at all.

For Old Investments (Before April 1, 2023):

In case you are selling the older units purchased before the April 2023, these will be classified separately as follows:

• Short-Term (held up to 24 months): Capital gains will be included in your income and taxed as per your income tax slab rates.
• Long-Term (held for over 24 months): Capital gains will be taxed at a flat rate of 12.5%.