Best Overnight Funds
Overnight funds in India offer a smart way to park surplus cash for just a single business day while earning better returns than traditional savings accounts. These funds provide liquidity, stability and minimal risk, making them ideal for short-term parking of idle funds. However, they differ significantly from liquid funds in terms of investment duration and risk-return dynamics. Let’s explore some of the best overnight funds to consider for investment in 2025.
What Are Overnight Funds?
The Securities and Exchange Board of India defines overnight funds as open-ended debt mutual funds investing in overnight securities. Investors usually raise purchase and redemption requests for these funds during trading hours. These bonds mature on the following business day after you invest. Fund managers often use the encashed amount to reinvest in other similar funds.
Overnight Funds Vs Liquid Funds
While overnight funds mature on the next business day after investing, liquid funds mature within 91 days. As a result, the latter is subject to higher risks associated with interest rates, credit and default. In addition, overnight funds can be suitable for parking your excess corpus as they do not attract an exit load. Liquid funds, on the flip side, attract variable exit load until the 6th day. From the 7th day onwards, there is no exit load.
Pros of Investing in the Best Overnight Funds
Here are the benefits of investing in overnight funds:
- If you have excess cash, you can invest it in these funds to receive higher returns than savings accounts.
- These funds are prone to lower risks with market fluctuations and volatility due to the high liquidity options.
- Due to its minimal investment tenure, investors can better utilise their idle funds for short-term goals with predictable returns.
An Overview of the Best Overnight Funds
Here are the details pertaining to some of the best overnight funds:
1. SBI Overnight Fund
SBI Overnight Fund (Direct Growth) is one of the best overnight fund examples that allocates 3.48% of its portfolio to debt instruments, primarily government securities. Before investing, it is wise to compare its performance against the CRISIL Liquid Overnight Index to ensure alignment with your financial goals and maximise potential returns.
- Asset Under Management: ₹21,498.46 crore approximately
- Expense Ratio: 0.7%
- Launch Date: January 2013
- Investment Details: Debt (3.48%), Others (96.52%)
2. ICICI Prudential Overnight Fund
The minimum investment amount in ICICI Prudential Overnight Fund (Direct Growth) is ₹100 for lump sum and ₹500 for SIP (Systematic Investment Plan). Investment in this fund can be backed by a comparison with the benchmark CRISIL Liquid Overnight Index.
- Asset Under Management: ₹10,036.94 crore approximately
- Expense Ratio: 0.10%
- Launch Date: November 2018
- Investment Details: T-Bills (6.73%), Others (93.27%)
3. HDFC Overnight Fund
HDFC Overnight Fund (Direct Growth) allocates 4.83% of its portfolio to debt instruments. Since its inception, it has delivered an annualized return of approximately 6.04%. Managed by Swapnil Jangam, this fund is worth considering after reviewing its past performance and key investment factors.
- Asset Under Management: ₹12,517.25 crore approximately
- Expense Ratio: 0.1%
- Launch Date: December 2012
- Investment Details: Debt (4.83%), Others (95.17%)
4. Axis Overnight Fund
Axis Overnight Fund (Direct Growth) invests 4.78% in government securities. Comparing with the benchmark Nifty 1D Rate Index can help you make an investment decision based on past performance trends.
- Asset Under Management: ₹7,828.07 crore approximately
- Expense Ratio: 0.05%
- Launch Date: March 2019
- Investment Details: Debt (4.78%), Others (95.22%)
5. Aditya Birla Sun Life Overnight Fund
Aditya Birla Sun Life Overnight Fund (Direct Growth) allocates 4.97% of its portfolio to government securities, along with other instruments. To make an informed investment decision, compare its past performance with the CRISIL Liquid Overnight Index, its benchmark, for better return optimisation.
- Asset Under Management: ₹8,138.11 crore approximately
- Expense Ratio: 0.05%
- Launch Date: November 2018
- Investment Details: Debt (4.97%), Others (95.03%)
Key Takeaway
Overnight funds can yield better returns than savings accounts while offering tax benefits that may outperform bank deposits in 2025. These funds come with no exit load, making them a flexible choice for short-term investments. You can park excess cash for just a single business day and optimise your liquidity and returns.
Frequently Asked Questions
1. Are there risks associated with the best overnight funds?
The best overnight funds are associated with minimal risks, making them one of the most secure types of debt funds. Interest rate or credit risks associated with these funds are negligible.
2. Can I invest in an overnight fund instead of a bank deposit?
As debt funds or overnight funds are tax-efficient, the actual return that you receive on your investment is higher compared to the returns of bank fixed deposits. Moreover, the interest on fixed deposits is taxable under the Income Tax Act, 1961.
3. How long should I stay invested in the best overnight funds?
You can invest in the best overnight funds for 1 day as they mature on the next business day after investing. However, if there are holidays in between 2 business days, you can remain invested in these funds for a few days.
4. How to invest in overnight funds?
Prior to investing in overnight funds, make sure to check the historic performance of the fund you choose. Industry experts recommend choosing lumpsum as the investment mode for overnight funds. Regular tracking and monitoring can help you earn potential overnight funds returns.
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