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All About Overnight Funds: Should You Invest In Overnight Funds?

Overnight funds came into the spotlight ever since liquid funds decided to charge an exit load for redemptions within 7 days. This blog coversall you need to know about overnight funds. Read to know how you can invest in the best overnight funds in India in 2021 using Cube Wealth.

Priya Bansal

Overnight funds are open-ended debt mutual fund schemes but they are unlike any other debt fund. Overnight funds can only invest in securities that mature overnight or in 1 day. 

SEBI introduced overnight funds in 2018 after it reclassified the mutual fund category. There’s been a lot of talk about overnight funds ever since liquid funds began charging an exit load for redemptions within 7 days. 

Let’s understand how overnight funds invest, who should invest in overnight funds and whether overnight funds are better than liquid funds. 

What Are Overnight Funds?

Overnight funds are debt funds that are allowed to invest in money markets and debt instruments that mature overnight or in one day. As per SEBI, overnight funds are open-ended debt schemes. 

3 Highlights of overnight funds include:

  • Safety
  • Liquidity
  • Reasonable short term returns

Overnight funds are considered to be the safest debt funds due to their style of investment. Thus, overnight funds are used by investors to park money for the day, week, or month. 

The benchmark for overnight funds or entities that lend in the overnight market is the Nifty 1D Rate Index. 

Read this blog to know more about the best mutual funds you can invest in India. 

How Do Overnight Funds Work?

Overnight funds invest in debt and money securities that mature overnight. These securities may include (among others):

  • Collateralized Borrowing and Lending Obligations (CBLOs)
  • Reverse repo
  • Bank deposits
  • Certificate of Deposits (CDs)
  • Commercial Paper (CPs)
  • Bills Rediscounting

The returns that you earn will be the interest generated by the overnight fund’s debt and money market holdings. There’s theoretically no other way for an overnight fund to generate returns. 

The interest rates closely determine the performance of overnight funds. When interest rates fall, overnight rates fall. Conversely, when interest rates rise, overnight rates rise. 

The Safest Debt Fund

Overnight funds are considered to be the safest debt fund because SEBI does not permit them to invest in risky debt instruments that have a maturity period of more than a day. 

Furthermore, securities maturing in one day have a very low probability of defaulting on their interest payments. Thus, the credit risk is next to zero.  

However, overnight funds are market-linked investments so speak to a Cube Wealth Coach before investing in any scheme. 

Features Of An Overnight Fund

1. Its portfolio changes every day 

2. Old securities are replaced with new ones after 24 hours

3. Funds (AUM) are held entirely in cash at the start of each day 

4. Returns tied to overnight lending and borrowing rates

5. Rising interest rates + high liquidity = better returns

6. Falling interest rates + low liquidity = lower returns

7. Relatively low returns in the range of 3-5% (3+ years)

8. Low default risk and credit risk

9. It is treated as a debt fund during taxation

10. Low expense ratio (< 1%)

5 Benefits Of Overnight Funds

1. Low risk

Overnight funds are widely accepted to be safer than most mutual funds including liquid funds and ultra short term funds due to these reasons: 

  • SEBI does not permit overnight funds to invest in high-risk debt instruments
  • It is assumed that securities maturing in 1 day can not default on the interest payment 
  • Low volatility due to the overnight lending maturity

2. Easy to enter and exit

Investors can enter or exit an overnight fund with ease during the trading hours. 

3. Low investment cost

Overnight funds have a lower expense ratio (< 1%) than other mutual funds. This is because of the almost passive management style of these funds. 

4. No exit load

Overnight funds do not charge an exit load so it is convenient to withdraw your investment within a day. On the hand, liquid funds charge an exit load if you withdraw your investment within 7 days. 

5. High liquidity

Overnight funds are highly liquid similar to a bank savings account. You can even redeem your investment within a day. 

Watch this video to know more about how you can start investing

Who Should Invest In An Overnight Fund?

Overnight funds are broadly considered to be an ideal short term investment since the fund’s portfolio matures overnight. Short term here can imply even a day. 

Beginners who want to explore mutual funds and conservative investors are known to invest in overnight funds due to the low-risk nature of the investment.  

That’s not to say that seasoned investors don’t prefer overnight funds. Many seasoned investors use an overnight fund as a pitstop to:

  • Park their idle or surplus cash for a day, week, or month
  • Transfer money to an equity fund using a Systematic Transfer Plan (STP)

Read this blog to know how a Systematic Transfer Plan (STP) works. 

Apart from that, overnight funds are an attractive investment proposition due to these factors: 

  • Low risk
  • No exit load
  • High liquidity

But the low-risk proposition that an overnight fund offers is coupled with low returns. So it is advisable to consult a Cube Wealth Coach to know if you should invest in overnight funds based on your goals. 

How To Invest In The Best Overnight Funds?

The Cube Wealth app is the most productive way to invest in the best overnight funds. Here’s why:

1. Curated recommendations 

The Cube Wealth app gives you access to the best handpicked overnight funds. Cube’s mutual fund advisory partner, Wealth First, curates a list of the best mutual funds for Cube users every month.

2. Wealth coaches

A good wealth coach looks out for your needs. That’s exactly what Cube Wealth Coaches do. A Cube Wealth Coach will have a conversation with you to understand your investment goals and suggest investment options to achieve said goals.  

3. Convenient SIP options

A Systematic Investment Plan is one of the best ways to invest in mutual funds. The Cube Wealth app helps you get the best out of a SIP with these two options:


Take a risk quiz to understand your risk profile and get recommendations tailored to your needs to start a SIP

Here’s an in-app QuickSIP guide for you


Adjust your SIP date, set up a NACH auto-debit, or even skip your SIP

Here’s a snapshot of SuperSIP in action on the Cube Wealth app

4. Advice on when to sell

When you invest using Cube Wealth  not only do you get a curated list of the best mutual funds but our mutual fund advisory partner also tells you whether to buy, hold or sell a fund when the markets are exceptionally volatile. This can be crucial to getting the best out of your mutual fund investments. 

Get started today

The Best Overnight Fund Currently Being Recommended on Cube

Note: All facts & figures are as of 12-01-2021. Figures mentioned in the table above comprise publicly available data on Google. While we update our blogs regularly, check the Cube Wealth app for the latest facts & figures.


Overnight funds invest in debt and money market securities that mature overnight or 24 hours. An overnight fund’s portfolio consists of new securities that replace old securities every day. 

Overnight funds carry low credit risk due to the short maturity period, have high liquidity, and do not charge an exit load. Thus, overnight funds are considered to be ideal short term investments. 

The Cube Wealth app helps you invest in the best overnight funds with expert advice from Wealth First, Cube’s mutual fund advisory partner, that currently has 3000+ clients and an AUM of ₹7,000+ crores. 

Download the Cube Wealth app or speak to a wealth coach to know more. 

Watch this video to know more about handpicked mutual funds on Cube Wealth


1. What are overnight funds?

Ans. Overnight funds are debt funds that invest in debt and money market securities. These securities mature overnight. The risk associated with an overnight fund is low. Speak to a wealth coach to know more.  

2. Are overnight funds safe?

Ans. Overnight funds are safer than other debt funds. However, it is still a market-linked instrument. Consult a wealth coach to know if you should invest in overnight funds. 

3. Which overnight fund is best?

Ans. The Cube Wealth app gives you access to the best overnight funds curated by Wealth First, Cube’s mutual fund advisory partner. Here’s one of the best overnight funds currently being recommended on Cube:

  • Franklin overnight fund
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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