Simplifying Overnight Funds

What are Overnight funds?
Overnight Funds are a relatively new category of mutual funds. This is a new category of debt funds that was introduced as part of SEBI's mutual fund reclassification exercise in 2017. These funds invest in debt instruments that have a maturity period of one day.
The instruments are bought with a day to mature and thus benefit from the overnight price difference. Collateralised Borrowing and Lending Obligations (CBLOs) with one day maturity are their preferred choice of investing. CBLOs operated by Clearing Corporation of India (CCIL) and the Reserve Bank of India (RBI).

How do Overnight Funds work?
On a general basis, the fund manager purchases securities in the overnight market at the start of each day. These securities mature on or before next business day, and the price will have minimal effect even if the Reserve Bank of India (RBI) changes the interest rates. The next day, securities mature and new overnight securities are purchased at the new price.
Even if the credit rating of the issuer changes, the price of this fund will have a little to no effect on such funds. Note that the reinvestment is done at the rate available for the next day.

Salient features of Overnight Funds
• Relatively unaffected by market volatility
• Greatest liquidity among debt funds
• One-day maturity of the underlying instruments
• Minimum to no risk due to the short investment horizon
• Strives to provide relatively reasonable returns
• Better utilisation of idle funds

Taxation of Overnight Funds @
Gains on selling of units held for more than three years are subject to LTCG tax at the rate of 20% after indexation. Gains on sale of units held for a shorter period are added to a person’s income and taxed at the marginal tax rate. Their dividends are subject to 29.12% dividend distribution tax.

Who should invest in Overnight Funds? • Investors who are risk-averse and are looking to park their money overnight
• Investors looking for greater liquidity with reasonable returns
• Ideal for institutional investors (banks, insurers and corporates) looking for overnight returns when parking surplus funds
• Investors who require a temporary parking spot for money in a financial emergency
• Ideal feeder funds for those investing in equity funds through systematic transfer plan

An Investor Education & Awareness Initiative.


Investors should deal only with Registered Mutual Funds, to be verified on SEBI website under Intermediaries/Market Infrastructure Institutions". Refer for details on completing one-time KYC (Know Your Customer) process, change of details like address, phone number etc. and change of bank details etc. For complaints redressal, either visit or SEBI's website


Disclaimer – This information is for general information only and does not have regard to particular needs of any specific person who may receive this information. L&T Investment Management Limited, the asset management company of L&T Mutual Fund or any of its associates; does not guarantee/indicate any returns/and shall not be held liable for any loss, expenses, charges incurred by the recipient. The recipient should consult their legal, tax and financial advisors before investing. Recipient of this information should understand that statements made herein regarding future prospects may not be realized or achieved.

The returns from mutual funds are subject to market fluctuations while returns on savings account, fixed deposits and bonds are fixed.


Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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