Overnight Funds: Meaning, Best Funds, Returns & FAQs

Have you ever borrowed money from a friend just before a salary day? You promise to repay them the very next day. This scenario mirrors the concept behind overnight funds in the world of finance.

This article will help you delve deeper into the mechanics of overnight funds, exploring their advantages, risks, and comparison to other available options. Let’s get started!

What Are Overnight Funds?

An overnight fund is a type of debt-oriented mutual fund that invests in debt securities with a maturity period of one day.

The fund manager invests in securities that will mature the next day. Thus, the fund’s liquidity is refreshed daily and the fund manager has to reinvest the available cash into new securities.

This approach ensures that the invested capital becomes accessible on the following day, making the overnight fund highly liquid. It means investors can buy or sell units of the overnight funds on any trading day.

Additionally, these funds do not have lock-in periods & exit loads, providing investors with the freedom to manage their investments as needed.

Best Performing Overnight Funds

Based on past 5-year performance, below are some best performing overnight funds. The list does not comprise any specific suggestions or investment advice.

Fund Name3-Year CAGR5-Year CAGR
SBI Overnight Fund4.33%4.65%
ICICI Prudential Overnight Fund4.34%Not Applicable
Aditya BSL Overnight Fund4.36%Not Applicable
HDFC Overnight Fund4.32%4.65%
Axis Overnight Fund4.38%Not Applicable
Last Updated: August 2023

Related Read: How To Choose A Mutual Fund

Risks And Returns Of Overnight Funds

Due to their investments in securities with a maturity of just one day, these funds carry minimal risks, making them a secure choice for short-term investments.

Short-term debt securities typically offer lower interest rates. As a result, overnight funds tend to generate comparatively lower returns when compared to alternative investment options.

Importantly, while overnight funds do provide lower returns, they still offer higher returns than traditional savings accounts.

Advantages of Overnight Funds

Overnight funds are designed for specific types of investors who seek the following advantages in their investments.

Low Risk

Overnight funds focus on short-term debt securities with one-day maturity, which minimizes exposure to market risks. The low-risk nature of overnight funds could be a perfect fit for conservative investors.

High Liquidity

Life is unpredictable, and so are financial needs. Overnight funds allow you to have your cake and eat it too – your money is working for you while remaining accessible whenever you need it.

Good For Parking Idle Funds

Overnight funds offer an excellent parking spot for idle funds. Instead of letting your money sit idle in a low-interest savings account, these funds let you earn returns on those funds that are temporarily out of active use.

Low Market Volatility

Overnight funds primarily deal with short-term debt securities that promise a fixed income on maturity. Hence market volatility does not impact them much.

Overnight Funds Vs Liquid Funds

Overnight funds and liquid funds both are popular for their exceptional liquidity. Various investors consider liquid funds an alternative to overnight funds. However, It is important to recognize the subtle differences between the two.

Overnight funds invest in very short-term debt securities with a maturity of one day while liquid funds invest in short-term debt securities with slightly longer maturities. For this reason, liquid funds are exposed to a slightly higher risk than overnight funds.

Additionally, liquid funds generally offer slightly higher returns compared to overnight funds due to their slightly longer investment horizon.


  1. How to invest in overnight funds?

    Here are the steps:
    A. Register with any reputed online investment platform
    B. Open an account & complete KYC
    C. Select An Overnight Fund
    D. Choose the mode of investment i.e. lumpsum or SIP Investment
    E. Make the payment

  2. What is the tax treatment on Overnight funds?

    Taxation for debt-oriented overnight funds involves two categories;
    1. STCGs (funds sold before three years),
    2. LTCGs (Fund sold after 3 years of investment).
    As per recent changes in taxation rules, both STCG and LTCG from debt funds are now subject to taxation according to the applicable Income Tax slab rate.

  3. Who should invest in overnight funds?

    Overnight funds are suitable for investors with the following purposes:
    1. Individuals with idle cash
    2. Accumulation of emergency fund
    3. Conservative investors
    4. Alternative to a savings account
    5. Corporate entities to meet urgent financial needs etc.

  4. Can I do SIP in an overnight fund?

    Obviously, most mutual fund companies offer SIP mode for investing in an overnight fund.

A commerce graduate turned a digital creator to follow his passion for writing and sharing useful & well-researched information that adds some value to people's lives.

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