Fund categories, explained
Overnight funds
for cash you’ll need in days.
An overnight fund lends only until the next business day, every day. It earns less than a liquid fund, and in return carries almost no interest-rate or credit risk.
5.2% over the past year
The typical (median) return of 33 regular-plan funds, all fund houses
- Typical, 3 years
- 5.9% a year
- Typical, 5 years
- 5.7% a year
- Funds counted
- 33
The basics
What is a overnight fund?
Invests in overnight securities, maturing in one day.SEBI’s definition of the category
What it holds
- Overnight loans to banks and others, backed by government securities (TREPS and repos)
- Nothing that matures later than the next business day
Who it can suit
- Cash a business needs within days: payroll, a supplier payment, a tax date
- Money waiting for a decision, when even a small fall in value would matter
Comes up most in Corporate Treasury
Side by side
Overnight funds or an FD?
Neither is better in general. It depends on when you need the money and what you can live with along the way.
| Compare | Overnight fund | Fixed deposit |
|---|---|---|
| Return | Tracks the overnight rate, day by day | Fixed for the term |
| Tax | Only when you sell, at your slab rate | Interest taxed every year, at your slab rate |
| Getting it out | Next business day, usually with no exit load | Breaking it early usually costs interest |
| Safety | Not guaranteed or insured; one-day loans backed by government securities | Insured up to ₹5 lakh per bank (DICGC) |
Before you invest
Risks, tax and getting your money out.
The risks, plainly
- The lowest-risk mutual fund category, but not guaranteed or insured.
- Returns follow the overnight rate set in the money market, so they fall when the RBI cuts rates.
- After costs, returns can trail a liquid fund’s; overnight funds suit days, not months.
How it’s taxed
Gains are taxed at your income-tax slab rate when you sell, however long you have held the units (for units bought from April 2023). There is no tax while you hold them: unlike FD interest, nothing is taxed until you redeem.
Tax rules change with budgets. We go through the current position with you and your CA.
Getting your money out
- Redemptions reach your bank account the next business day.
- Most overnight funds charge no exit load.
Typical returns
What the category has returned.
The median return of every overnight fund's regular plan, across all fund houses, from AMFI’s published NAVs as of 30 October 2026. Half the funds did better, half did worse.
Over 1 year
5.2%
Median of 33 funds
Over 3 years, a year
5.9%
Median of 32 funds
Over 5 years, a year
5.7%
Median of 26 funds
Regular plans, growth option, which include the distributor’s commission. Returns over a year are yearly averages (CAGR). Past returns of a category, not a recommendation of any scheme: past performance may or may not be sustained in future, and what suits you depends on your goals and a suitability check. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
FAQs
Your questions about overnight funds.
What is the difference between an overnight fund and a liquid fund?
Can an overnight fund lose money?
Who should use an overnight fund?
How are overnight funds taxed?
What are the cut-off times for overnight funds?
Overnight fund or savings account?
Fund categories
Compare it with similar categories.
New to mutual funds? Mutual funds, explained
Your next step
Know your money will do what you need it to.
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