How To Invest In Overnight Money Market
Overnight funds are open up-concluded debt mutual fund schemes but they are unlike any other debt fund. Overnight funds tin can only invest in securities that mature overnight or in 1 day.
SEBI introduced overnight funds in 2018 after information technology reclassified the common fund category. In that location'south been a lot of talk about overnight funds always since liquid funds began charging an leave load for redemptions within vii days.
Let'southward 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-concluded debt schemes.
3 Highlights of overnight funds include:
- Safety
- Liquidity
- Reasonable curt term returns
Overnight funds are considered to be the safest debt funds due to their manner of investment. Thus, overnight funds are used by investors to park coin for the day, calendar 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 Bharat.
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
- Depository financial institution deposits
- Certificate of Deposits (CDs)
- Commercial Paper (CPs)
- Bills Rediscounting
The returns that yous earn volition be the interest generated by the overnight fund's debt and money market holdings. There'south 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 considering SEBI does non permit them to invest in risky debt instruments that have a maturity menstruation of more than a day.
Furthermore, securities maturing in one twenty-four hours accept a very low probability of defaulting on their interest payments. Thus, the credit adventure is side by side to zero.
However, overnight funds are market-linked investments so speak to a Cube Wealth Motorbus before investing in any scheme.
Features Of An Overnight Fund
one. Its portfolio changes every day
ii. Old securities are replaced with new ones after 24 hours
three. Funds (AUM) are held entirely in cash at the start of each 24-hour interval
4. Returns tied to overnight lending and borrowing rates
5. Rising interest rates + high liquidity = improve returns
6. Falling involvement rates + depression liquidity = lower returns
7. Relatively low returns in the range of 3-5% (3+ years)
eight. Depression default risk and credit risk
9. It is treated as a debt fund during taxation
x. Low expense ratio (< one%)
5 Benefits Of Overnight Funds
ane. Low take a chance
Overnight funds are widely accepted to exist safer than most common funds including liquid funds and ultra short term funds due to these reasons:
- SEBI does non permit overnight funds to invest in high-take chances debt instruments
- It is causeless that securities maturing in one day can non default on the interest payment
- Low volatility due to the overnight lending maturity
2. Easy to enter and exit
Investors can enter or leave an overnight fund with ease during the trading hours.
3. Low investment cost
Overnight funds have a lower expense ratio (< ane%) than other mutual funds. This is because of the most passive direction style of these funds.
4. No go out load
Overnight funds practise not accuse an leave load so it is convenient to withdraw your investment within a 24-hour interval. On the mitt, liquid funds charge an exit load if yous withdraw your investment within 7 days.
v. Loftier liquidity
Overnight funds are highly liquid like to a bank savings account. You can even redeem your investment within a 24-hour interval.
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Who Should Invest In An Overnight Fund?
Overnight funds are broadly considered to exist an ideal short term investment since the fund's portfolio matures overnight. Brusk term here can imply fifty-fifty a day.
Beginners who want to explore mutual funds and conservative investors are known to invest in overnight funds due to the low-run a risk nature of the investment.
That's not to say that seasoned investors don't prefer overnight funds. Many seasoned investors utilise an overnight fund as a pitstop to:
- Park their idle or surplus cash for a day, calendar week, or calendar 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 bonny investment suggestion due to these factors:
- Low risk
- No exit load
- High liquidity
Simply the low-run a 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 All-time Overnight Funds?
The Cube Wealth app is the near 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'southward mutual fund advisory partner, Wealth First, curates a listing of the best mutual funds for Cube users every calendar month.
ii. Wealth coaches
A good wealth coach looks out for your needs. That's exactly what Cube Wealth Coaches exercise. A Cube Wealth Jitney will accept a chat with you to understand your investment goals and advise investment options to attain said goals.
3. Convenient SIP options
A Systematic Investment Plan is 1 of the best means to invest in mutual funds. The Cube Wealth app helps you lot become the all-time out of a SIP with these 2 options:
QuickSIP
Take a adventure quiz to understand your risk profile and get recommendations tailored to your needs to offset a SIP
Here's an in-app QuickSIP guide for you
SuperSIP
Adapt your SIP appointment, fix a NACH auto-debit, or fifty-fifty skip your SIP
Here'southward a snapshot of SuperSIP in action on the Cube Wealth app
4. Advice on when to sell
When you invest using Cube Wealth not but practice you lot 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 exist crucial to getting the best out of your mutual fund investments.
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The All-time Overnight Fund Currently Existence Recommended on Cube
Note: All facts & figures are as of 12-01-2021. Figures mentioned in the table in a higher place contain publicly available data on Google. While we update our blogs regularly, check the Cube Wealth app for the latest facts & figures.
Summary
Overnight funds invest in debt and money market place securities that mature overnight or 24 hours. An overnight fund'due south portfolio consists of new securities that supercede old securities every day.
Overnight funds carry depression credit gamble due to the brusque maturity period, have loftier 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 proficient advice from Wealth Commencement, Cube'due south common 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 than about handpicked mutual funds on Cube Wealth
FAQs
ane. What are overnight funds?
Ans. Overnight funds are debt funds that invest in debt and money market securities. These securities mature overnight. The hazard associated with an overnight fund is low. Speak to a wealth double-decker to know more.
2. Are overnight funds safe?
Ans. Overnight funds are safer than other debt funds. However, it is all the same a market-linked musical instrument. Consult a wealth bus to know if you should invest in overnight funds.
3. Which overnight fund is best?
Ans. The Cube Wealth app gives yous admission to the best overnight funds curated by Wealth First, Cube's mutual fund advisory partner. Here's one of the all-time overnight funds currently being recommended on Cube:
- Franklin overnight fund
Source: https://www.bankoncube.com/post/what-are-overnight-funds-who-should-invest
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