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Overnight Funds

What are overnight mutual funds?

Overnight funds are a type of open-ended mutual fund that invests in debt and money market instruments with maturities of one day. These instruments include options like Tri-Party Repos (TREPS) on government securities or treasury bills, and other securities with a residual maturity of one business day or where the interest rate resets daily.

Key Features:

Low risk
Overnight maturity of underlying securities
May be used for efficient utilization of idle funds

How do they work?

Adhering to SEBI regulations, the fund manager invests in fixed-income securities that mature overnight. The daily investment is made in overnight securities, and the scheme earns income through interest payments on its holdings. There is no potential for capital gains as the securities mature in a single day. Returns on these funds mirror borrowing rates, overnight lending, fluctuating with interest rates and short-term liquidity.

Benefits of Investing:

May be a valuable option for short-term parking of excess cash.
Ideal for risk-averse investors.
Offers low credit risk and low interest rate risk.

Who Should Invest:

Risk-averse investors seeking overnight parking for funds or Investors seeking returns on idle cash.
Institutional investors (banks, insurers, corporations) looking for potential returns on surplus funds.
Investors may use it as a channel to transfer funds systematically to other schemes such as diversified equity funds

Taxation:

Gains from overnight funds are taxed according to the investor's income tax bracket. It's advisable to consult a tax advisor for further guidance.

Disclaimer - Please note that this article or document has been prepared on the basis of internal data/ publicly available information and other sources believed to be reliable. The information contained in this article or document is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party in any manner. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article or document.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Published on Dec 20, 2024

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