Navi Mutual Fund launches Overnight Mutual Fund scheme

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In July, 2023, Navi Mutual Fund, a fund house known for coming up with low-cost funds, launched its overnight mutual fund. It is a debt scheme that invests in debt securities with an overnight maturity. Parmar wanted to know how the scheme works and whether it is good for him or not.

Overnight mutual funds are considered to be one of the safest of all mutual funds, as per the Association of Mutual Funds in India (AMFI). These fall under the debt category of mutual funds.

-Overnight funds invest in debt and money market overnight securities that mature the very next day or in one day.

-The fund manager uses the proceeds to buy new securities maturing the very next day.

-Fund manager buys only debt securities with the highest rating and minimal credit risk.

Since overnight mutual funds’ securities mature the following day, these are not subject to the same level of interest rate or default risk as other debt funds.

As per the Value Research data,  as of July 16, 2023, average returns of overnight mutual funds have been 6.08%, 4.18%, and 4.59% over 1 year, 3 years, and 5-years, respectively.

So, What kind of investors should invest in an overnight fund?

-Overnight funds are primarily suitable for businessmen or entrepreneurs.

-These are also idle for investors who want to build emergency funds to meet  unexpected expenses. these funds provide the highest liquidity.

If we compare such funds with current and savings and accounts of banks, then, in case of current accounts one does not earn any interest on the balances. Also, bank savings account interest is generally low and varies from bank to bank, and is paid at the end of the quarter. Whereas, overnight mutual funds provide returns on redemption or, at times, even daily if the investor so chooses so.

Nitin Rao, Head of Products & Proposition, Epsilon Money Mart, says, Investing in any product should naturally be borne out of investor’s needs. Overnight funds can be treated as a substitute for the current bank account. However, investors should keep in mind that returns are not guaranteed. Risk even though small is still there.

Money9 suggest that with a holding period of only one day, overnight funds are an excellent choice for investors with a time horizon of one week or less.  Investors should remember that overnight funds are not meant to increase your profits. Investors can take help of financial advisors, in case they are not clear on their goals or risk-taking appetite