Overnight Mutual Funds

An overnight fund holds securities that mature in 1 day, and very little else. SEBI, the market regulator, words the rule as “overnight securities having maturity of 1 day”. Each one is repaid the next working day.

It is a debt fund. A mutual fund pools money from many people, and a professional manager invests it under SEBI rules. A debt fund puts that money into loans to governments, banks or companies, in the form of bonds and similar paper.

There is one small exception. The fund may keep up to 5% of its net assets (its total value) in G-secs or T-bills. Both are paper issued by the Government of India; T-bills are the short-dated kind. These can have no more than 30 calendar days left to run. They are held only as margin and collateral, meaning money set aside to back the fund's own trades.

Two things are off limits:

• Structured or credit-enhanced debt. These are loans whose repayment leans on extra arrangements, such as backing from another party. Debt that carries a government guarantee is allowed.
• Bank term deposits. The fund may not park money in the fixed deposits banks offer.

Most open-ended debt funds must keep at least 10% of their money in liquid assets such as cash, G-secs and T-bills. Overnight funds are exempt. Almost everything they hold matures the next day.

SEBI's name for the category is Overnight Fund, and a scheme's name must now match its category. These are open-ended schemes, so they have no fixed end date and you can sell your units whenever you choose.

Overnight funds usually carry no exit load; check the scheme document. An exit load is a fee some funds charge if you sell within a set time after buying. The scheme document is the fund's official rulebook, and each fund's own terms are set out there.

SEBI does require a liquid fund to charge a graded load on anyone who leaves within 7 calendar days. That duty is written for liquid funds only. Overnight funds are not required to charge it.

On a liquid fund, the load starts at 0.0070% of the money you take out on day 1. It steps down each day and reaches nil from day 7. On a ₹1,00,000 withdrawal on day 1, that works out to ₹7.

Terms can be set scheme by scheme, so read the scheme document of the fund you pick.

There is no lock-in either. A lock-in is a period during which you cannot sell at all. Overnight funds are open-ended, so none applies.

Yes, up to a limit, if your fund offers instant access. SEBI allows only two kinds of scheme to offer the Instant Access Facility: overnight funds and liquid funds. It pays your redemption money, what you get for selling units back to the fund, on the same day.

The conditions are strict:

• requests must be made online;
• only resident individuals can use it;
• the most you can take is ₹50,000 or 90% of the latest value of your holding in that scheme, whichever is lower;
• that limit applies per day, per scheme and per investor.

In rupees: say your holding in one overnight fund is worth ₹25,000. 90% of it is ₹22,500, which is lower than ₹50,000. So ₹22,500 is the most you can take out that day through instant access.

Now say the holding is worth ₹1,20,000. 90% would be ₹1,08,000. That is above ₹50,000, so the cap for that day is ₹50,000.

The rule lets a scheme offer the facility. It does not make every scheme run it, so confirm your fund has it before you count on it.

A normal redemption, outside instant access, follows SEBI's standard payout rule. The money must reach you within 3 working days.

Low on SEBI's scale, but not zero. The riskometer is the risk label SEBI makes every fund show, on six levels from Low to Very High, checked every month. Most listed overnight funds read Low on 29 September 2026; a few read Low to Moderate.

The label comes from a formula applied to what the fund holds. For debt, it scores three things:

• credit risk, the chance a borrower does not repay;
• interest-rate risk, how much a holding's price moves when interest rates change;
• liquidity risk, how easily a holding can be sold.

Securities that mature in 1 day, G-secs and cash each score 1 on all three. That is the formula's lowest score. An average score of 1 or less maps to Low, the bottom of the six levels.

Low still does not mean the value is fixed. Every debt fund, this one included, values its holdings at prices supplied by valuation agencies. That is a market price, not a fixed book value.

The label can also change. Each fund re-checks it every month and publishes it within 10 days of month-end. If a scheme's level changes, the fund house must tell its investors by email or SMS as well as by a public notice.

Koshex reviews your holdings over time and flags changes such as a fund's risk level moving.

Gains are taxed at your slab rate, the rate on your normal income, for units bought on or after 1 April 2023. That is because an overnight fund is a Specified Mutual Fund under section 76 of the Income-tax Act, 2025. The test is more than 65% of the fund in debt and money market instruments (short-dated loans and paper).

For those units, the holding period does not matter. The holding period is how long you own a unit, from the day you buy it to the day you sell it. Every gain on units bought on or after 1 April 2023 is treated as a short-term capital gain and added to your income. That label normally means profit on units sold soon after buying.

Here is a worked example. The gain is assumed, not a forecast. Suppose you bought units in May 2026 and sell them in August 2026 for a gain of ₹12,500. Surcharge, an extra charge on the tax once total income passes ₹50 lakh, is assumed not to apply. Cess is an extra 4% on the tax.

• Top slab 20%, units bought on or after 1 April 2023, no surcharge assumed: ₹2,500 in tax plus ₹100 as 4% cess, so ₹2,600.
• Top slab 30%, same units, no surcharge assumed: ₹3,750 in tax plus ₹150 as 4% cess, so ₹3,900.

Hold the same units for three years and nothing changes: the gain is still taxed at your slab rate. No TDS (tax deducted at source, taken out before money reaches you) is cut when a resident redeems.

Older units follow older rules. Units bought before 1 April 2023 and held 24 months or less are taxed at slab rate. Units bought before that date and held longer are taxed at 12.5%, with no adjustment for inflation.

Then there is IDCW. Here the fund pays money out from its income or gains, and its NAV (the price of one unit) falls by that amount. IDCW is taxed at your slab rate. The fund deducts 10% TDS on IDCW above ₹10,000. That TDS is credited against your tax for the year, and any excess comes back as a refund. The growth option pays nothing out.

Pick by how soon you need the money. These three short-term categories differ first in how long their holdings may run:

• Overnight: securities maturing in 1 day. Koshex suggests it for money needed in days to weeks.
• Liquid: debt and money market securities of up to 91 calendar days. Koshex suggests days to a few months.
• Money market: money market instruments maturing within 1 year. Koshex suggests up to 1 year.

The fee rules differ as well. A liquid fund must charge the graded load on exits within 7 calendar days. An overnight fund is not required to, and usually charges none.

On the riskometer, most listed liquid funds and most listed money market funds read Low to Moderate on 29 September 2026. That is one level above where most overnight funds sat that day.

An overnight fund fits money with a near date on it. Think of a school fee due in three weeks, or cash waiting between the sale of one flat and the down payment on another. For a goal many months away, the liquid or money market rows sit closer to that timeline.

Koshex helps you choose a fund that suits your goal and timeline, starting with the date you need the money.

Use the table on this page, which shows the top 10 of 32 listed overnight funds. Of them, 30 have a 3-year record, so only those are ranked on 3-year return and counted in the averages.

Look at four columns:

• 3-year and 5-year CAGR. CAGR is the average yearly growth rate, as if the fund grew at one pace every year. Set each fund against the category averages of 5.6% and 5.8%.
• Expense ratio. This is the fund's yearly fee, shown as a percentage of your money and taken out of the fund's value. A lower fee leaves more of the return with you.
• AUM. Assets under management is the current total value of the money a fund manages. The listed funds together hold ₹1,16,395 Cr.
• Riskometer. A few listed overnight funds read Low to Moderate on 29 September 2026, so check the level on each scheme's own page.

Money parked for a short while often goes in as a lumpsum, a larger amount put in at one time. A SIP works too. It invests a fixed amount at regular intervals, usually monthly, and each instalment buys units at that day's NAV.

Each SIP instalment has its own purchase date. Any unit you buy now falls after 1 April 2023, so its gain is taxed at your slab rate when you sell.