Overnight Fund: The Safest Mutual Fund for Short-Term Goals

Have you ever wished for a place to park your money just for a day or two, without the stress of losing it or locking it up? That’s exactly what an overnight fund is made for. It’s the simplest and lowest-risk category in the world of mutual funds—and believe it or not, it’s becoming more popular in India by the day.

In this guide, we’ll explain what is an overnight fund, how it works, its advantages, who should consider it, and how top funds like SBI Overnight Fund compare with the rest.

What is Overnight Fund?

An overnight fund is a type of debt mutual fund that invests in securities with a maturity of just one day. Yes, you read that right—just one day. That means the fund buys financial instruments (like government bonds or treasury bills) that mature within 24 hours. Once they mature, the money is reinvested the next day.

This cycle keeps repeating daily, which makes overnight mutual funds extremely low-risk. There’s no interest rate risk, no credit risk (if the fund invests in high-quality assets), and very minimal volatility.

Why Overnight Mutual Funds are Gaining Popularity

A of June 2025, more individuals, startups, corporates, and even high-net-worth investors are using overnight mutual funds to:

• Park idle cash temporarily
• Avoid risk in uncertain markets
• Get slightly better returns than a savings account
• Stay liquid while waiting to invest elsewhere

These funds are like a parking lot for your money. Your funds stay safe, earn a little something, and can be withdrawn quickly, usually within one working day.

Key Features of Overnight Fund

Let’s break it down into simple points:

• Tenure of Securities: Always one day
• Risk Level: Very low
• Returns: Better than bank savings account (but lower than other debt funds)
• Liquidity: High and can be redeemed within one working day
• NAV Calculation: Daily, post-market hours
• Who Regulates It: SEBI (Securities and Exchange Board of India)

So if you’re wondering what is an overnight fund, just remember, it’s a daily investment tool for short-term cash parking.

Who Should Invest in Overnight Mutual Funds?

Anyone who wants safety + quick access + small returns should consider it. Here are a few typical investors:

• Salaried individuals parking bonus or emergency funds for a short time
• Business owners who get large payments and want to use it smartly
• Corporate treasuries managing temporary cash flow
• Parents saving for fees or short-term goals in the next few weeks

It’s also a great alternative to keeping funds idle in your bank account.

Returns from Overnight Funds: What Can You Expect?

Overnight funds are not meant to give you double-digit returns. Their goal is to give stable and consistent returns while keeping your capital 100% safe.

As of June 2025, most overnight funds return between 5% and 5.5% annually. That may sound small, but when you compare it to your savings account (which gives 2.5%–3%), it’s actually better. Plus, your money is not locked in.

Returns are slightly lower than liquid funds, but the safety is higher. There’s zero volatility and zero exposure to long-term debt instruments.

Best Overnight Funds in India (2025 Updated List)

If you’re curious about the best overnight funds, here’s a quick list based on performance, fund size, and reliability (as of June 2025):

Fund Name	1-Year Return	AUM (₹ Crores)	Risk Level
SBI Overnight Fund Direct Growth	5.25%	₹20,000+	Very Low
HDFC Overnight Fund	5.15%	₹18,500	Very Low
ICICI Prudential Overnight Fund	5.30%	₹15,200	Very Low
Kotak Overnight Fund	5.22%	₹13,900	Very Low
Axis Overnight Fund	5.18%	₹12,000	Very Low

All of these are available in direct and regular plans, with growth and IDCW options.

Among these, the SBI Overnight Fund Direct Growth is highly rated due to its low expense ratio and consistent returns. It’s trusted by both retail and institutional investors for short-term parking.

How to Choose the Right Overnight Fund

If you’re planning to invest, it’s important to know how to compare different overnight mutual funds. Even though they all work in a similar way, there are a few things to check before putting your money in.

1. Expense Ratio

Since returns are already low in overnight funds, the expense ratio becomes a key factor. This is the small fee the fund house charges for managing your money. A lower expense ratio means higher net returns for you. For example, SBI Overnight Fund Direct Growth has a very low expense ratio, making it a popular choice.

Also read: 10 Mutual Fund Ratios – Expense, Alpha, Beta and More

2. Fund Size (AUM)

Larger funds often mean better liquidity and more trust from investors. Look for funds with a solid Assets Under Management (AUM)—anything above ₹1,000 crore is considered strong.

3. Past Returns

While returns are not the main goal here, consistency matters. The best overnight funds give around 5% to 5.5% yearly. Compare this with the bank’s savings account to see if the jump is worth it.

4. Exit Load

Most overnight funds have no exit load. That means you won’t be charged anything if you withdraw your money early. Still, double-check before investing.

SBI Overnight Fund Direct Growth: A Closer Look

As of June 2025, the SBI Overnight Fund Direct Growth is one of the best options in this category. Let’s break down why:

• 1-Year Return: Around 5.25%
• AUM: ₹20,000 crore+
• Risk Level: Very Low
• Expense Ratio: Less than 0.10%
• Exit Load: None
• NAV Stability: No volatility

This fund is backed by SBI Mutual Fund, one of India’s most trusted fund houses. Whether you’re an individual or a company, SBI Overnight Fund gives you a reliable parking spot for your short-term money.

Taxation on Overnight Funds

As per June 2025 tax rules, overnight fund returns are treated as short-term capital gains. This means:

• If you sell your units within 3 years, the gains are taxed as per your income tax slab.
• There is no indexation benefit for overnight funds.
• You receive an account statement from the fund house for easy tax filing.

So, while returns are stable, your tax depends on your personal slab. If you’re in a lower slab (like 5% or 10%), the impact is minimal.

When to Use an Overnight Fund?

Here are ways, when it’s best to use an overnight fund:

Use Case	Why It Works
Waiting to invest in equities	Keeps your funds safe until you’re ready
Bonus or salary parked short-term	Earns more than savings account
Business with cash flow needs	Quick liquidity, no lock-in
Emergency fund parked temporarily	Low risk + easy access
Saving for a bill, EMI, or fee due next week	Keeps money secure and growing daily

Even for just 7 days, overnight mutual funds can be a smarter option than leaving cash idle.

Sector Growth & Latest Trends (June 2025)

The overnight fund category in India has grown rapidly. According to AMFI (Association of Mutual Funds in India):

• Total AUM in overnight funds crossed ₹1.2 lakh crore in June 2025
• Average returns improved slightly due to rising short-term interest rates
• SBI, HDFC, ICICI Prudential, and Kotak remain top players

Also, more investors are switching from savings accounts to overnight mutual funds for better returns and safety. Even mobile apps now offer auto-sweep features that move idle money into overnight funds daily.

Risks You Should Know

While overnight funds are super safe, here’s what you still need to remember:

• Returns are not fixed. Though stable, they may slightly fluctuate with RBI policy changes.
• No compounding magic. Returns are low, so it’s not ideal for long-term goals.
• Not suitable for inflation-beating. You won’t make wealth here—it’s for safety, not growth.

Think of it like a zero-volatility zone. It’s great for a stopover, not for a long journey.

Conclusion

To wrap it up, if you want to park your money safely, earn better returns than a bank account, and still have instant access to funds, an overnight fund is your go-to option.

Whether it’s the SBI Overnight Fund Direct Growth or other best overnight funds in India, the idea is the same: protect your money and earn a little while doing so.

As interest rates stay stable in 2025 and more people look for safe investment options, overnight mutual funds will continue to grow in popularity. And when it comes to smart investing, platforms like SMC Global Securities make it easy, professional, and reliable for everyone.

Frequently Asked Questions – FAQS

1. What is an overnight fund, and how does it work?

An overnight fund is a type of mutual fund that invests in securities with a maturity of just one day. This means your money is lent to safe borrowers overnight and returned the next day with a small gain. Since the investments reset daily, overnight mutual funds carry very low risk and are ideal for parking idle money short-term.

2. What is the difference between an overnight mutual fund and a savings account?

While both are low-risk, overnight mutual funds usually offer better returns than a typical savings account. Also, the money in overnight funds earns interest every day, and you can redeem it quickly without much hassle. It’s a smart choice if you’re looking for a short-term, safe place for your money.

3. What are the best overnight funds in India right now?

As of June 2025, some of the best overnight funds include:

• SBI Overnight Fund Direct Growth
• HDFC Overnight Fund
• ICICI Prudential Overnight Fund

These funds offer low expense ratios, stable returns, and no exit loads. You can compare and invest in them easily through platforms like SMC Global Securities.

4. What kind of returns can I expect from overnight funds?

The returns from overnight funds generally range from 4.5% to 5.5% annually, depending on interest rate trends. While they won’t make you rich overnight, they’re much better than keeping money idle in your bank account.

5. Is the SBI Overnight Fund Direct Growth safe for investment?

Yes, the SBI Overnight Fund Direct Growth is one of the most trusted overnight funds in India. It invests only in overnight securities with top-rated borrowers and has a track record of delivering steady returns with minimal risk. Plus, it charges a very low expense ratio, making it a solid choice for conservative investors.

Author: All Content is verified by SMC Global Securities.