--- title: What is an Overnight Fund? canonical_url: https://sanchaykaro.com/what-is-an-overnight-fund/ last_updated: 2026-04-23T07:27:29+00:00 plugin_version: 1.2.1 --- # What is an Overnight Fund? Do you have some **extra cash** sitting in your **savings account**? Do you need **easy access** to your money but want to earn **better returns**? An **Overnight Fund** could be the perfect choice for you. This blog explains **what is an Overnight Fund** in very simple language. You will also learn how to invest easily using the **Sanchaay Karo app**. --- ### What is an Overnight Fund? (Very Simple Definition) An **Overnight Fund** is a type of **debt mutual fund** that invests only in **securities** that **mature in one day**. According to **SEBI rules**, an **Overnight Fund** is an **open-ended debt scheme** that invests in **overnight securities** having **maturity of 1 day**. These **securities** are bought at the start of the day and mature by the next business day. The entire **AUM (Assets Under Management)** is in **cash** at the beginning of each day, and then it is used to purchase **overnight bonds**. In India, **overnight funds** became a popular **alternative to liquid funds** after **SEBI** tightened credit quality norms for **liquid fund portfolios** in 2019. Think of it like this: Your **savings account** gives you around 3% interest. A **Liquid Fund** gives around 6.5-7% but is best for a few weeks to a month. An **Overnight Fund** is the **safest** of them all. It is designed for money you need **tomorrow** or in the next few days. You earn **slightly more than a savings account**, but your money is never locked. You can take it out **anytime** with **no penalty**. **SEBI's 2026 reclassification** kept **Overnight Funds** as the first and safest category under the new **debt mutual fund classification framework**. It is the **lowest-risk category** in the entire **mutual fund universe**. --- ### How Does an Overnight Fund Work? (Step-by-Step) **Overnight Funds** pool money from many **investors**. A professional **fund manager** then invests that money in **overnight securities** that mature in **one business day**. The **entire portfolio** is **reinvested** every single day. This daily cycle is what makes **Overnight Funds** so **safe**. Here is a simple step-by-step explanation: **Step 1: Start of the Business Day** At the start of each business day, the **fund's assets** are essentially in **cash**. The **fund manager** takes that cash and prepares to invest. **Step 2: Purchasing Overnight Securities** The **fund manager** uses the cash to buy **debt securities** that will **mature** by the next business day. These include: - **Tri-party Repo (TREPS)** – secured overnight lending - **Reverse Repo** – lending to **RBI** - **CBLOs (Collateralised Borrowing and Lending Obligations)** - **Treasury Bills (T-Bills)** with 1-day maturity - **Other money market instruments** **Step 3: Securities Mature** The next morning, those **securities** **mature**. The money comes back with **interest**. **Step 4: Daily Reinvestment Cycle** The **fund manager** reinvests the proceeds into fresh **overnight securities**. This cycle happens **every single day**. **Step 5: Interest Income Generation** The **return** the **fund** generates comes entirely from the **interest** earned on these **overnight instruments**. That **return** is closely tied to prevailing **short-term interest rates** in the economy, which are influenced by the **RBI's repo rate**. **Consequence of this structure:** Every **security** in the **portfolio** **matures** within 24 hours. There is almost no possibility of a **default** going unnoticed, and there is **no meaningful exposure to interest rate movements**. A **one-day security** cannot fluctuate much in price because it barely exists long enough to fluctuate. This makes the **credit risk** and **interest rate risk** in an **Overnight Fund** as close to **zero** as anything in the **mutual fund universe** gets. **Overnight funds** do not charge an **exit load** even if you redeem your investment in a **single day**. This feature matters enormously for **investors** who need genuine **flexibility**. You are not penalised for changing your mind tomorrow. --- ### Key Features of Overnight Funds FeatureWhat It Means**SEBI Mandate of 1 Day Maturity**Invests only in **securities** with **maturity of 1 day**. May deploy up to 5% in **G-secs/T-bills** up to 30 days for margin/collateral**Open-ended**You can buy or sell units on any business day**Extremely Low Risk****Low interest rate risk** and **low credit risk** due to **very short maturity**. **Virtually zero** risk of **default****High Liquidity**You can **redeem** your money anytime. Money typically reaches your **bank account** the next business day (T+1)**No Exit Load**Most **Overnight Funds** have **nil exit load**, even if you redeem in a **single day****No Lock-in Period**You are not forced to stay invested for a fixed period**Low Expense Ratio****Expense ratio** is very low (often 0.05–0.30%) because **funds** are not actively managed**Short Investment Horizon**Ideal **investment horizon** is **1 day to 1 week****Professional Management**Expert **fund managers** handle all decisions**Minimum Investment**You can start with as little as **₹500**--- ### Benefits of Investing in Overnight Funds Here are the main benefits of adding an **Overnight Fund** to your **mutual fund portfolio**: BenefitWhy It Matters**Capital Safety**Since the **securities** **mature** within 24 hours, the **risk of default** is extremely low. Your **principal** is very safe**Unaffected by Market Volatility**The **short investment horizon** protects **Overnight Funds** from **interest rate fluctuations**, **credit risks**, and uncertainty against **liquidity****High Liquidity**You can **redeem** your money on any business day. Funds are typically credited the next business day (T+1). This is almost as fast as a **savings account****Better Returns than Savings Account****Overnight Funds** typically offer **slightly higher yields** (5-6%) than a **bank savings account** (around 3%) while keeping your money easily accessible**No Penalty for Withdrawal**Unlike **fixed deposits** that charge a penalty for **premature withdrawal**, **Overnight Funds** have **nil exit load**. You can withdraw anytime without penalty**Low Expense Ratio****Overnight Funds** come with an **expense ratio** of less than 1%. Since the investment is not managed actively, the costs involved are lower compared to other **mutual funds****Helps in Emergencies**Considering their **high liquidity**, these **funds** can be liquidated immediately at times of **emergencies**. You can efficiently use **Overnight Funds** to back up your **emergencies****Maximum Utilisation of Idle Cash**Idle cash does not bring you any profit but keeps you concerned about its safety if kept at home. You can invest it in **Overnight Funds** and rest assured it is safe and will provide you with higher **returns** than a **savings account****Ideal for Systematic Transfer Plans (STPs)**Wealth managers believe **investors** can allocate spare money in their bank accounts to **Overnight Funds** to earn more than a **savings account** and then run a **systematic transfer plan (STP)** to invest in an **equity fund****Low Minimum Investment**Start with as little as **₹500** – very accessible to all**Note:** According to **AMFI data**, there are 35 **Overnight Fund schemes** managing assets worth **₹96,490 crore** with **863,000 folios**. Over the last one year, **investors** have earned an average of **6.67%** in such schemes. Over three years, they have earned **5.65%**. This is higher than the **2.7-4.0%** that they earn in a bank **savings bank account** or **post office savings account**. --- ### Risks of Overnight Funds (Must Read) **Overnight Funds** are the **safest** among **debt mutual funds**, but they are **not 100% risk-free**. Every **investor** must understand the **risks of Overnight Funds**: RiskExplanation**Low Returns**Gains are modest compared to longer-term **debt funds** or **equity funds**. **Overnight Funds** are not meant to beat **inflation** but to provide **safety** and **liquidity****Reinvestment Risk****Returns** depend on daily **reinvestment** rates, which may vary. If **interest rates** fall, fresh investments earn lower **returns****Not for Wealth Creation**Suitable only for **short-term cash management**, not for building **long-term wealth**. For goals beyond 1 year, **equity funds** are better**Liquidity Risk**In a stressed **liquidity** scenario, even **overnight securities** may face some issues, though this is extremely rare**Credit Risk**Although very low (close to zero), there is a theoretical **risk** that a **counterparty** in a **repo** transaction may **default**. However, **securities** are **collateralised**, reducing this **risk** significantly**Note:** The **Potential Risk Class (PRC) matrix** of **PGIM India Overnight Fund** is **A-I**, which means that the **fund** has **relatively low interest rate risk** and **relatively low credit risk**. This is the **lowest risk classification** possible for a **debt fund**. --- ### Who Should Invest in Overnight Funds? (Ideal Investor Profile) **Overnight Funds** are perfect for: - **Investors with extremely short-term horizon of 1 day to 1 week**. Financial planners advise **investors** to use **Overnight Funds** for a time frame of between **one day and one week** - **Conservative investors** seeking **low-risk** options with **high liquidity** - **People with idle cash** in their **savings account** who want to earn **better returns** without sacrificing **access** to their money - **Investors looking for a safe place to park surplus funds** temporarily - **Salaried individuals** who want to park their bonus or surplus cash for a few days - **Corporates and institutions** parking large sums temporarily for **treasury** management - **Investors who need immediate access to funds** for emergencies - **Risk-averse individuals** seeking safer alternatives to **savings accounts** - **Investors who want to run a Systematic Transfer Plan (STP)** into **equity funds** **Who should AVOID Overnight Funds?** - **Aggressive investors** seeking **very high returns** (consider **equity funds** or **long-term debt funds** instead) - **Long-term investors** with a horizon of over 1 year – **equity funds** or **longer duration debt funds** may offer better **returns** - **Investors who need guaranteed returns** – **FDs** may be more suitable - **Investors who want to beat inflation** – **Overnight Funds** may not achieve this --- ### Overnight Fund vs Liquid Fund vs Money Market Fund (Simple Comparison) Many **investors** get confused between these three categories. Here is a simple comparison based on **SEBI rules**: Fund TypeInvestment MaturityReturn PotentialRisk LevelBest For**Overnight Fund****1 day**5-6%**Very Low**1 day to 1 week**Liquid Fund**Up to **91 days**6.5-7%Low1 week to 1 month**Money Market Fund**Up to **1 year (365 days)**7-7.5%Low to Moderate3-12 months**Key differences:** - **Overnight Funds** invest only in **securities** with **maturity of 1 day**, making them the **safest** among all **debt funds**. **Liquid funds** invest in **debt & money market securities** with **maturity** of up to 91 days and have slightly higher **risk** than **Overnight Funds**. - **Overnight Funds** have **no exit load**, while **Liquid Funds** may have a nominal graded **exit load** up to 6 days. - **Money Market Funds** are suitable if you wish to have dominant exposure to **money market instruments** and have an **investment time horizon** of up to a year. --- ### Overnight Fund vs Bank FD – Which is Better? AspectOvernight FundBank FD**Liquidity****High** – redeem anytime, money credited T+1**Low** – lock-in period; **premature withdrawal penalty****Returns****Not fixed** (5-6% currently), linked to **repo rate****Fixed**, predetermined **interest rate****Risk****Very low** – **insulated from interest rate** fluctuations and **credit defaults****Very low** – deposits up to ₹5 lakh insured by **DICGC****Lock-in****No lock-in period**Fixed lock-in period**Exit Load/Penalty****Nil exit load****Penalty** for early withdrawal**Minimum Investment**Low (₹500)Varies (often ₹1,000-₹10,000)**Returns Guarantee**No guarantee – **market-linked**Yes – **guaranteed returns****Taxation**Taxed at **slab rate**Taxed at **slab rate** with **TDS****Which is better?** An **Overnight Fund** is a good choice if you need **high liquidity** for an **emergency fund** or a temporary **cash surplus**. However, if **capital preservation** and **assured returns** are your priority, a **Fixed Deposit (FD)** is a better option. An **FD** is also a good choice if you have a specific sum of money that you can set aside for a fixed period. --- ### Top Overnight Funds in India (2026) Here are some of the **best Overnight Funds** in India based on **AUM** and performance (as of 2026): Fund NameAUM (₹ Crore)1-Year Return (%)Expense Ratio (Direct)Exit LoadModified Duration (Days)Yield to Maturity (%)**Axis Overnight Fund**7,8495.5%~0.09%Nil2 days5.04%**SBI Overnight Fund**~2,9735.4%~0.08%Nil——**HDFC Overnight Fund**~19,0005.6%~0.08%Nil——**ICICI Prudential Overnight Fund**~18,0005.6%~0.08%Nil——**Nippon India Overnight Fund**~8,3815.6%~0.08%Nil——**Kotak Overnight Fund**~15,0005.6%~0.08%Nil——**UTI Overnight Fund**~2,9735.4%~0.08%Nil——**Invesco India Overnight Fund**3325.3%0.12%Nil1.0 day5.01%**Franklin India Overnight Fund**7585.8%0.11%Nil——**Bajaj Finserv Overnight Fund**1,2575.5%0.08%Nil——*Data sources: FundsIndia, Axis Mutual Fund, UTI Mutual Fund* **Note:** **Axis Overnight Fund** has a **modified duration** of just **2 days** and an **average maturity** of **2 days**, keeping **volatility** extremely low. **Invesco India Overnight Fund** has a **modified duration** of **1 day**, the lowest possible. *Disclaimer: Past performance does not guarantee future returns. Please consult your **financial advisor** before investing.* --- ### When Should You Invest in Overnight Funds? (Timing Matters) Market ScenarioInterest Rate TrendExpected ImpactInvestor Action**Falling Interest Rates**Downward**Returns** may decrease as new investments earn lower **interest**Still suitable for **short-term parking****Rising Interest Rates**Upward**Returns** increase as new investments earn higher **interest****Good time to invest****Stable Interest Rates**SteadyStable, predictable **returns**Suitable for **short-term parking****1 Day to 1 Week Horizon**Any**Overnight Funds** offer high **liquidity** and **safety****Ideal investment horizon****Overnight Funds** are not meant for timing the market. They are designed for **short-term parking** of **cash**. The best time to invest is whenever you have **idle cash** that you do not need for a few days but want to keep accessible. --- ### Taxation on Overnight Funds (Simple Rules for FY 2026-27) **Overnight Funds** are treated as **debt mutual funds** for **taxation** purposes. The **tax rules** changed significantly from **April 1, 2023**. Purchase DateHolding PeriodTax Treatment**On or after April 1, 2023**Any period**Gains added to your income** and taxed as per your **income tax slab rate****Before April 1, 2023**Less than 3 years**STCG** added to your **income** and taxed as per your **slab rate****Before April 1, 2023**3 years or more**LTCG** taxed at **20% after indexation** benefit**Key tax rules for FY 2026-27:** - **Finance Minister Nirmala Sitharaman's Budget 2026** kept **income tax slabs unchanged**, retaining the structure of the new regime where a zero **tax rate** applies up to ₹4 lakh, and the top marginal rate is **30%** above ₹24 lakh - **Debt mutual funds** purchased **after April 1, 2023** are taxed at **slab rates** regardless of the **holding period**, reducing their **tax efficiency** for long-term **investors** - **Dividends** (IDCW) are added to your **income** and taxed as per your **slab rate** - The **fund house** deducts **10% TDS** under Section 194K if your **dividend** exceeds ₹5,000 in a financial year - For **NRIs** investing in **Overnight Funds**, the **TDS** rates are similar: 20% for **STCG** and 12.5% for **LTCG** (or as per applicable **slab rate**) **Example:** If you fall in the **30% tax bracket** and earn a **capital gain** of ₹10,000 from an **Overnight Fund** purchased after April 1, 2023, you will pay ₹3,000 as **tax** (30% of ₹10,000), regardless of how long you held the investment. **Note:** **Overnight Funds** do not provide **tax deductions** or exemptions like some other investments. For investments made **after April 1, 2023**, the **indexation** benefit for **LTCG** on **debt funds**, including **Overnight Funds**, has been removed, reducing the **tax advantage**. --- ### How to Invest in Overnight Funds Using Sanchaay Karo App Now that you understand what an **Overnight Fund** is, the next step is **investing**. The easiest way is through the **Sanchaay Karo app**. **Sanchaay Karo** is a simple, trusted, and **SEBI-registered** mutual fund investment platform. It helps you invest in **top Overnight Funds** and hundreds of other funds with just a few taps. [[SIP for Daughters Marriage](https://sanchaykaro.com/sip-for-daughter-marriage/)](https://sanchaykaro.com/sip-for-daughter-marriage/)#### Why Choose Sanchaay Karo App for Overnight Fund Investment? - **Smart Goal-Based Investing**: Tell the app your goal (emergency fund, short-term savings, or parking **idle cash**). It suggests the right **Overnight Fund** based on your **risk profile** and **investment horizon** - **Simple Dashboard**: See all your investments in one place – no confusion or clutter. Track **NAV**, **returns**, and **portfolio** in real time - **Quick KYC**: Complete your **KYC online** using Aadhaar and PAN in just 5 minutes. **Paperless KYC** is fully supported - **Start SIP from ₹500**: You don't need a lot of money. Start small with a **Systematic Investment Plan (SIP)** . You can do **monthly SIP**, **weekly SIP**, or **daily SIP** - **Track Performance**: Get regular updates on how your **Overnight Fund** is performing against its **benchmark** (Nifty 1D Rate Index) - **No Hidden Charges**: Transparent and low-cost. You can choose between **regular plan** and **direct plan** options. **Direct plans** have lower **expense ratios** - **Stay On Track**: Get timely reminders so your **SIPs** never stop - **Access to All AMCs**: Invest in **Axis Overnight Fund**, **SBI Overnight Fund**, **HDFC Overnight Fund**, **ICICI Prudential Overnight Fund**, **Nippon India Overnight Fund**, **Kotak Overnight Fund**, **UTI Overnight Fund**, **Invesco India Overnight Fund**, **Franklin India Overnight Fund**, **Bajaj Finserv Overnight Fund**, and many more #### Steps to Invest in Overnight Funds (Very Easy) 1. **Download** the **Sanchaay Karo app** from Google Play Store or Apple App Store 2. **Sign up** using your mobile number and email 3. **Complete KYC** – upload **PAN card** and Aadhaar (fully paperless). You can also do **video KYC** if needed 4. **Search** for "Overnight Fund" or let the app recommend one based on your **financial goals** 5. **Compare** different **Overnight Funds** based on **returns**, **expense ratio**, **exit load**, **modified duration**, **yield to maturity (YTM)** , and **fund manager** track record 6. **Choose** between **lumpsum** (one-time) or **SIP** investment. For **Overnight Funds**, **lumpsum** is common for **short-term parking** 7. **Pay** using **UPI**, net banking, or debit card 8. **Done!** Your investment starts growing. You will receive regular statements 👉 **\[Click Here to Download Sanchaay Karo App Now\]** () --- ### Important Tips Before Investing in Overnight Funds Before you invest in an **Overnight Fund**, keep these points in mind: 1. **Understand the Investment Horizon**: **Overnight Funds** are best for **1 day to 1 week**. For longer durations (1-3 months), **Liquid Funds** may offer better **returns** 2. **Check Modified Duration**: **Modified duration** shows how sensitive the **fund** is to **interest rate** changes. Lower **duration** means more stability. **Overnight Funds** typically have **duration** of **1-2 days** 3. **Check Credit Quality**: Ensure the **fund** invests in **highly rated instruments** with **P1+** rating for lower **credit risk**. **T-Bills** are the safest (sovereign-backed) 4. **Check Exit Load**: Most **Overnight Funds** have **nil exit load**. But always check the **Scheme Information Document (SID)** before investing 5. **Compare Expense Ratios**: **Direct plans** have much lower **expense ratios** (often 0.05-0.15%) than **regular plans** (often 0.50-1.00%). Over time, this difference matters 6. **Do Not Use for Long-Term Goals**: **Overnight Funds** are **not suitable** for **long-term wealth creation** (over 1 year). **Equity funds** have historically given much higher **returns** over the long term 7. **Use for Emergency Funds**: **Overnight Funds** are ideal for **emergency funds** because they offer **high liquidity**, **low risk**, and **better returns** than a **savings account** 8. **Monitor Interest Rate Movements**: When **interest rates** are rising, **Overnight Funds** benefit. When **rates** fall, **returns** may decrease. However, this impact is minimal due to the **short duration** 9. **Avoid Chasing Returns**: **Overnight Funds** are not for chasing high **returns**. They are for **safety** and **liquidity**. Do not expect **double-digit returns** 10. **Check Minimum Investment**: Most **Overnight Funds** accept **lumpsum** investments as low as ₹500. Some funds have a minimum **SIP** of ₹100-₹1000 --- ### Frequently Asked Questions (FAQs) About Overnight Funds **Q1: Are Overnight Funds safe?** A: **Overnight Funds** are considered the **safest among debt mutual funds**. They have **very low interest rate risk** and **very low credit risk**. However, they are **not 100% risk-free**. They are much safer than **Liquid Funds** or **equity funds**. **Q2: Can I lose money in Overnight Funds?** A: Yes, you can lose money, but the chance is **extremely low**. The **securities** **mature** within 24 hours, so there is almost no possibility of a **default** or **price fluctuation**. However, **returns** are **not guaranteed**. **Q3: What is the minimum SIP amount for Overnight Funds?** A: Most **Overnight Funds** allow **SIP** starting from **₹500** per month. Through the **Sanchaay Karo app**, you can start with as little as **₹500**. Some funds have a minimum **SIP** of ₹100. **Q4: How much returns can I expect from Overnight Funds?** A: Historically, **Overnight Funds** have delivered **5-6% annual returns**. Over the last one year, **investors** have earned an average of **6.67%** in such schemes. Over three years, they have earned **5.65%**. This is higher than a **savings account** (around 3%). **Q5: What is the difference between Overnight Funds and Liquid Funds?** A: **Overnight Funds** invest in **securities** with **maturity of 1 day**, while **Liquid Funds** invest in **debt & money market securities** with **maturity** up to 91 days. **Overnight Funds** have **lower risk** and **lower returns** than **Liquid Funds**. **Q6: How are Overnight Funds taxed?** A: For units purchased **after April 1, 2023**, all **gains** are added to your **income** and taxed as per your **income tax slab rate**, regardless of the **holding period**. **Q7: Can NRIs invest in Overnight Funds?** A: Yes, **NRIs** can invest in **Overnight Funds** through **Sanchaay Karo app** using their NRE/NRO account. **Q8: What is the expense ratio of Overnight Funds?** A: **Expense ratios** for **direct plans** typically range from **0.05% to 0.15%**. **Regular plans** have higher **expense ratios** (often 0.50-1.00%). For example, **Axis Overnight Fund** has an **expense ratio** of **0.09%** for the **direct plan**. **Q9: What is the exit load for Overnight Funds?** A: Most **Overnight Funds** have **nil exit load**. You can **redeem** your investment in a **single day** without any penalty. This is one of the biggest advantages of **Overnight Funds**. **Q10: What is the ideal holding period for Overnight Funds?** A: The ideal **investment horizon** for **Overnight Funds** is **1 day to 1 week**. For longer periods (1-3 months), **Liquid Funds** may be more suitable. For 3-12 months, **Money Market Funds** may be better. --- ### Final Words – Should You Invest in an Overnight Fund? **Yes**, if you: - Have **idle cash** that you do not need for **1 day to 1 week** - Are a **conservative investor** seeking the **safest** **debt mutual fund** option - Want **better returns than a savings account (5-6%)** without sacrificing **liquidity** - Need **immediate access to your money** with **no penalty** - Are building an **emergency fund** and want it to grow while remaining **easily accessible** - Want to **diversify** your **portfolio** with a **low-risk**, **highly liquid** **debt allocation** - Are looking for a **safe place to park surplus funds** temporarily - Want to run a **Systematic Transfer Plan (STP)** into **equity funds** **No**, if you: - Are an **aggressive investor** seeking **very high returns** (consider **equity funds** instead) - Have a **long-term horizon** (over 1 year) – **equity funds** or **long-term debt funds** may be better - Need **guaranteed returns** – **FDs** may be more suitable - Want to **beat inflation** – **Overnight Funds** may not achieve this - Cannot tolerate even the smallest amount of **risk** – **savings accounts** are safer **Overnight Funds** offer an excellent **balance** of **safety**, **liquidity**, and **modest returns** for **extremely short-term goals**. They are the **safest category** in the entire **mutual fund universe** and are perfect for parking **idle cash**, building **emergency funds**, or holding money before moving it to other **investments**. The golden rule for **Overnight Fund** investing: **Use them for 1 day to 1 week, compare expense ratios, choose direct plans, and always check the exit load structure.** Start your **investment journey** today with the **Sanchaay Karo app**. 👉 **\[Click Here to Download Sanchaay Karo App Now\]** () --- **Disclaimer:** This blog is for **educational purposes** only. **Mutual fund investments** are subject to **market risks**. **Overnight Funds** carry **low interest rate risk** and **low credit risk**. Please read all **scheme related documents** carefully, including the **Scheme Information Document (SID)** and **Statement of Additional Information (SAI)** , and consult your **financial advisor** before investing. **Past performance** does not guarantee **future returns**. The **Sanchaay Karo app** is a platform for mutual fund investments; all investments are subject to **market risk**.