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Best Overnight Mutual Funds: Overnight Mutual Funds Investment For 2022

This blog contains top handpicked overnight fund recommendations from Cube’s advisor. Come check it out!
June 13, 2022

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Ever wondered why debt funds are called debt funds? It’s because they invest in bonds, commercial paper, treasury bills, and other securities that are issued in exchange for a loan or “debt”. 

The tenure of these loans can vary and with it, the risks. A loan that’s spread out over the next 10 years carries far more uncertainty than one that’s due to be paid tomorrow. That’s what an overnight fund is.   

What Is An Overnight Mutual Fund?

An overnight fund is a debt fund that invests in debt securities that mature in 24 hours or less. This simply means that an overnight fund invests in loans that are repaid in up to 24 hours. 

This, by design, is known to reduce the risks that overnight funds carry. Furthermore, the best overnight funds invest in high-grade securities, often AA+ or SOV rated.

These factors mean that an overnight fund can generate 4% to 6% returns and is suitable for goals set for the coming month to 3 years. Overnight funds are often viewed as an alternative to bank savings accounts.   

Best Overnight Mutual Funds In 2022

The world of debt funds is vast and daunting. Overnight funds are just a type of debt fund and selecting the best ones to achieve your goals for the short term can be tricky. 

That’s why it’s best to have a trusted advisor by your side like the one Cube gives you access to. They can help you invest in the right overnight fund based on your profile. 

Here’s a snippet of the best overnight fund on Cube.

Overnight Fund

1-Year Returns

3-Year Returns

Expense Ratio

Franklin India Overnight Fund




Franklin India Overnight Fund has been in the market since 2019. It invests in debt securities that mature in one day and manages a portfolio worth ₹154 crores. Tap to invest now

Reasons To Invest In Overnight Funds?

1. Better Than Bank Savings Account

Most bank savings accounts in India offer 2.50 to 3% interest (at best). Overnight funds offer a relatively better alternative with predictable returns in the range of 4-6%.  

2. Relatively Safe

Overnight funds invest in extremely short-term debt securities that mature in a day. This is known to reduce the risk carried by overnight funds. In fact, overnight funds are considered to be less risky than liquid funds.

3. Suitable For Short-Term Goals

An overnight fund is suitable for extremely short-term goals. For example, it can be used as a pitstop for a Systematic Transfer Plan (STP) or as an alternative to a savings bank account.

Explore overnight funds

Risks Involved In Overnight Mutual Fund Investments

1. Interest Rate Risk

If the RBI increases the repo rate, debt securities like bonds are known to become less desirable. This is known as interest rate risk that debt funds and overnight funds can be affected by. 

2. Credit Risk

Although the debt that overnight funds invest in is extremely short-term, there is a chance that a debtor might default. This can affect the value of the overnight fund as it puts its principal capital directly at risk.

3. Over/Under Diversification

Most investors tend to invest in too many or the wrong mutual funds. This can stunt wealth creation in two ways. You:

  • Invest in multiple overnight funds and incur a higher investment cost
  • Invest in the wrong overnight funds and don’t reach your wealth creation goals

Knowing which overnight fund to invest in is important. Cube helps you with getting the right overnight fund recommendations by giving you access to advise from Wealth First. 

Know more about WF by watching this video.

Taxability Of Overnight Mutual Funds

Overnight funds are treated as debt funds during taxation. If you sell an overnight fund in less than 3 years, you’ll have to pay a tax on Short Term Capital Gains (STCG) that’ll be as per your I-T slab

On the other hand, if you sell an overnight fund after 3 years, you’ll have to pay a tax on Long Term Capital Gains (LTCG) that’s flat 20% with an indexation benefit. Want to save tax? Get a custom portfolio made here

Note: Facts & figures are true as of 12-06-2022. None of the information shared here is to be construed as investment advice. Exercise caution when investing in assets like stocks, mutual funds, alternative investments, and others.

Priya Bansal
Curious about personal finance and all things money. Can either find me reading a book or dancing to a tune.

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