Overnight funds are open-ended debt mutual fund schemes that invest in overnight securities with a maturity of one day. This means that the fund manager buys securities on a daily basis in these schemes. These securities mature in a day and the entire cash is deployed in buying new securities. This investment mandate makes these schemes highly liquid. Overnight funds are treated as the safest among the debt mutual fund categories, this is because of their very short investment horizon, these schemes have almost no credit risk and do not get impacted by interest rate changes.
Overnight funds are ideal for investors who do not wish to park their money for a long period of time and intend to benefit from extra returns with the least amount of risk Overnight funds carry negligible risk and are apt for investors who have a very short investment horizon Investors who wish to gather funds for some emergencies or others may invest in these funds as a backup option.
- If an investor has made an investment in a debt mutual fund and withdraws the amount before 3 years of investment, Short Term Capital Gains Tax would be levied, as per the income tax slab of the investor.
- If an investor withdraws the investment including capital gains post 3 years of investment, 20% Long Term Capital Gains Tax of 20% is levied, with the benefit of indexation.
The minimum investment varies from scheme to scheme. It could range between Rs.500/ – to Rs.5,000/ -.