Rs. 100- Rs. 10 crore
Start investing with Rs. 100 | Easy KYC | Expert-managed funds
How to Invest in SIP A Beginner's Guide
In summary
Overnight funds invest in debt and money market securities with a maturity of one business day. This short maturity keeps interest-rate sensitivity relatively low, but it does not make the fund risk-free. The main points to remember are:
- Overnight funds invest in one-day securities
- One-day maturity limits interest-rate sensitivity
- Returns remain market-linked and never guaranteed
- Tax rules use a 65% debt threshold
- Minimum investment varies across individual schemes
Overnight funds can help with short-term parking of surplus money where liquidity matters. Before investing, check the scheme's Riskometer, expense ratio, minimum investment, portfolio, redemption terms, and applicable tax treatment.
What is an overnight fund?
An overnight fund is an open-ended debt mutual fund that invests in overnight securities with a maturity of one business day.
SEBI continues to recognise Overnight Fund as a debt-fund category. As of 31 August 2026, SEBI's mutual fund industry data recorded 38 overnight fund schemes.
The securities held by an overnight fund mature very quickly. The fund manager can then reinvest the proceeds into new eligible overnight securities.
This structure gives the category relatively low sensitivity to changes in market interest rates compared with debt funds holding securities for months or years.
However, “low risk” should not be read as “no risk”.
How do overnight funds work?
Overnight funds continuously invest in securities that mature on or before the next business day.
Suppose a security held by the scheme matures tomorrow. When the fund receives the maturity proceeds, the fund manager can use the money to purchase another eligible overnight security.
This process continues across business days. The original draft suggests that the fund's entire Assets Under Management (AUM) first sits in cash every morning. That description is too rigid. The important feature is the one-business-day maturity of the portfolio securities, not that the entire fund must be held as cash at a particular point each day.
The Net Asset Value (NAV) reflects the value of the scheme's assets after accounting for liabilities and expenses.
What does an overnight fund example show?
A simple illustration can explain how changes in NAV affect your investment value.
Suppose Meera invests Rs. 50,000 in an overnight fund when its NAV is Rs. 1,000 per unit.
The number of units is:
Rs. 50,000 ÷ Rs. 1,000 = 50 units
Assume the NAV later becomes Rs. 1,001 per unit.
The illustrative value becomes:
50 units × Rs. 1,001 = Rs. 50,050
The increase is Rs. 50 before applicable costs and taxes.
This example only explains the calculation. It does not represent an expected or guaranteed overnight fund return.
Why do investors use overnight funds?
Overnight funds are mainly used for short-term cash management rather than long-term wealth creation. Their key characteristics include:
- Short maturity: Securities mature within one business day
- Liquidity: Open-ended units can generally be redeemed
- Low duration risk: Short maturity limits rate sensitivity
- Professional management: The AMC manages the underlying portfolio
- Market-linked returns: Returns depend on portfolio income and costs
These features can make overnight funds relevant when money is temporarily available before being needed elsewhere. However, an investor should still check the redemption timeline. “Overnight” describes the maturity of the underlying securities, not a promise that redemption money reaches your bank account immediately.
What risks do overnight funds carry?
Overnight funds generally carry lower duration risk than longer-term debt funds, but they still carry investment risk.
Important risks include:
- Credit risk: An issuer or counterparty can face repayment problems
- Liquidity risk: Market conditions can affect transactions
- Reinvestment risk: New overnight rates can be lower
- Expense risk: Scheme costs reduce the investor's return
- Operational risk: Settlement or processing issues can occur
Interest-rate risk is relatively limited because the securities mature within one business day. However, describing overnight funds as completely immune to interest-rate or credit risk would be incorrect.
How are overnight funds taxed in 2026?
For current tax purposes, overnight funds generally fall within the definition of a specified mutual fund because they invest predominantly in debt and money market instruments.
Under Section 76 of the Income Tax Act, 2025, a specified mutual fund includes a fund investing more than 65% of its total proceeds in debt and money market instruments. For covered units acquired on or after 1 April 2023, gains on redemption are treated as short-term capital gains regardless of the holding period.
Such gains are generally taxed at the investor's applicable rate.
This means the older rule stating that holding an overnight fund for more than three years automatically provided 20% long-term capital gains tax with indexation is no longer the current position.
Tax treatment can depend on the acquisition date and individual circumstances. Check the current tax rules before redemption.
Who might consider an overnight fund?
An overnight fund may be relevant when your main requirement is temporarily parking surplus money with high liquidity and relatively low duration risk.
You might evaluate this category if you:
- Have temporary surplus cash: Money is not needed immediately
- Want short maturity: You prefer one-day portfolio maturity
- Need liquidity: You may need the money soon
- Accept market-linked returns: You do not require guaranteed returns
- Understand debt risk: You accept that risk remains
Overnight funds are not designed primarily for long-term capital growth.
They may also be unnecessary if you require guaranteed returns, deposit insurance, or immediate physical access to cash.
Conclusion
Overnight funds are debt mutual funds designed around securities that mature within one business day. Their short maturity keeps duration-related price risk relatively limited and can make them useful for short-term cash management.
However, they are not savings accounts or guaranteed-return products. Returns can change with prevailing overnight rates, costs, and portfolio conditions.
Before investing, compare the fund's current Riskometer, expense ratio, liquidity arrangements, portfolio, minimum investment, and taxation. Your choice should depend on when you need the money and how much investment risk you can accept.
Last reviewed: October, 2026
Mutual funds are subject to market risk. Please read the scheme-related documents carefully before investing.
Explore Investment Tools
Articles and Insights
Frequently Asked Questions
Understanding overnight funds
Choosing an overnight fund
What is an overnight fund?
An overnight fund is an open-ended debt mutual fund that invests in securities with a maturity of one business day. As the securities mature, the fund manager reinvests the proceeds in new eligible overnight instruments. This structure keeps interest-rate sensitivity relatively low compared with longer-duration debt funds, but the investment remains market-linked and is not free from credit, liquidity, or other risks.
Are overnight funds profitable?
Overnight funds can generate positive returns from the income earned on their underlying overnight securities, but profits are not guaranteed. Returns depend on prevailing overnight interest rates, portfolio income, expenses, and other market factors. Because these funds prioritise short maturity and liquidity rather than long-term growth, their return potential should not be compared directly with higher-risk equity or longer-duration investments.
Are overnight funds better than FD?
Neither option is automatically better. A bank fixed deposit normally offers a stated interest rate for a fixed tenure, while an overnight fund provides market-linked returns and greater portfolio turnover. Eligible bank deposits can also receive DICGC insurance up to Rs. 5 lakh per depositor per bank, while mutual fund units do not receive deposit insurance. Your choice depends on liquidity needs, investment period, taxation, and risk.
Who should invest in an overnight fund?
An overnight fund may be considered by investors who have temporary surplus money, want high liquidity, and prefer relatively low interest-rate sensitivity. It can also be used while deciding where to invest money for a longer-term goal. However, it is not appropriate simply because you want guaranteed capital or returns, as mutual fund values remain market-linked.
What is the minimum investment amount for overnight funds?
There is no universal minimum amount for all overnight funds. Each asset management company sets the minimum lumpsum, SIP, and additional investment amounts for its scheme. Check the latest Scheme Information Document or Key Information Memorandum before investing. On the Bajaj Broking website, SIPs start from Rs. 100 per month for eligible mutual fund schemes.
Disclaimer
Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319
BFL does NOT:
(i) provide investment advisory services in any manner or form.
(ii) carry customized/personalized suitability assessment.
(iii) carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.
In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on As-is basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme/Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities forming part of the Mutual Fund. The NAV will inter-alia be exposed to Price/Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other/better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.
Investment by a person residing outside the territorial jurisdiction of India is not acceptable nor permitted.
Disclaimer on Risk-O-Meter:
Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc, and shall also consult their Professional advisors, if they are unsure about the suitability of the scheme before investing.
Disclosure: Bajaj Finance Limited (BFL) is a distributor of Mutual Funds with ARN - 90319 and distributes mutual funds of Bajaj Finserv Asset Management Limited (BFSAMC). BFL receives commission towards distribution of mutual fund products. BFSAMC is a group company of BFL, carrying business on arm’s length basis without any conflict of interest and in accordance with the prevailing law / regulation.
Disclaimer
Bajaj Finance Limited ("BFL") is an NBFC offering loans, deposits and third-party wealth management products.
The information BFL contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed.
This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.
Disclaimer
Mutual Fund SIP calculator may provide potential investors an approximate estimate on the maturity amount of the monthly SIP, purely based on mathematical calculation of the projected annual return rate selected by investor. However, such calculation does not factor the actual performance by the Asset Management Company (AMC) and should not be treated as any advice or assurance about the actual return of investment. Mutual Funds do not have a fixed rate of return and it is not possible to predict the rate of return. Please note that the SIP calculator are for illustrations only and do not represent actual returns which may vary depending on various factors including but not limited to actual performance, expense ratio, taxation, exit load (if any), etc.