The Dos and Don'ts of Taking Out a Money Loan

Should you invest in Overnight Debt Mutual Funds?

Investment is a key to financial growth. But with numerous options available, it is important to understand each one. One option in this regard is Overnight Debt Mutual Funds. These are mutual funds that invest in debt securities that have a maturity of one day only! Yes, one day only.

This unique feature makes them low-risk investments. This article will discuss this investment option and who can opt for it.

What are Overnight Debt Mutual Funds?

Overnight Mutual Funds are a type of mutual fund that invests in securities maturing in just one day.

Close up View of Cash Money Dollars Bills in the Amount

These funds are considered the safest debt funds with a lower risk of default as borrowers need to give securities as collateral. However, lower risk means you have to settle for low returns.

All assets held by an overnight fund can be categorized as Cash and Cash Equivalents. Each day, the portfolio of an overnight fund is replaced with new overnight securities. This makes them a low-risk investment suitable for investors with a low-risk tolerance. They offer a safe avenue for investors to park their funds and achieve stable growth.

Factors To Consider Before Investing in Overnight Debt Mutual Funds

Here is a list of things that you must think about before putting your money into overnight debt mutual funds.

  • Investment Objectives and Risk Appetite: Ensure that your financial objectives and risk tolerance align with those of the chosen overnight fund.
  • Fund Performance: Although all overnight mutual funds invest in similar securities, there can still be slight differences in returns.
  • Expense Ratio: A lower expense ratio can result in potentially higher net returns.
  • Investment Horizon: Consider how soon you will need access to your funds. Overnight funds offer high liquidity, but if you can tolerate a slight restriction on accessibility, other options like FDs with shorter lock-in periods can be an option.
  • Returns: Returns aren’t at their best with overnight funds. They are safer and more accessible than a savings account but provide poor returns.
  • Market Conditions: Cost ratios and returns vary a lot between funds. Investors should watch the market closely and choose funds that are low-cost and do well.

Comparing Overnight Debt Mutual Funds with Other Investment Options

Investment Option Maturity Period Risk Returns Liquidity
Overnight Debt Mutual Funds 1 day Extremely low Low High
Liquid Funds Up to 91 days Low Moderate High
Short-Term Debt Funds 1 day to 12 months Low to moderate Moderate Moderate
Fixed Deposits Varies Low Moderate Low
Savings Account N/A Low Low High


Overnight Debt Mutual Funds can be a safe and liquid option for short-term investment needs. They offer low risk but also provide lower returns compared to other investment options. Always remember, your investment decisions should align with your financial goals and risk tolerance. If you’re looking to diversify your portfolio further, explore the Dhan stock trading platform. It could be a great way to start your journey in the stock market, complementing your mutual fund investments.

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