Financial Awareness Level
What are Overnight Scheme?
Introduction
Overnight scheme is a category of debt mutual fund scheme that invests in securities with a maturity of just one day. This scheme category is designed to offer liquidity and stability, making them an attractive choice for investors looking for short-term parking of funds with minimal risk.
What is an Overnight Scheme?
An overnight scheme invests in debt instruments that mature in a single day. At the end of each trading day, the fund manager reinvests the matured funds into new securities with a one-day maturity. This process continues daily, ensuring that the portfolio remains highly liquid and relatively low-risk.
How Do Overnight Scheme Work?
Since these schemes invest in securities that mature within 24 hours, they experience lesser interest rate fluctuations and credit risk. The primary objective of overnight scheme is to provide a safe investment avenue with reasonable returns. (You are recommended to seek advice from financial advisor before you take any/refrain from any action)
Benefits of Overnight Scheme
- Low Risk: Since securities mature within a day, exposure to credit risk and interest rate risk is minimal.
- High Liquidity: Investors can quickly redeem their investments without significant loss.
- Relatively Stable Returns: While returns are relatively lower than other debt schemes, they are consistent and less volatile.
- No Lock-in Period: Investors can enter and exit the fund at any time, making it ideal for short-term parking of surplus funds.
Risks Associated with Overnight Scheme
- Lower Returns: Compared to longer-duration debt scheme, overnight scheme offer lower returns. (You are recommended to seek advice from financial advisor before you take any/refrain from any action)
- Inflation Risk: Returns may not always keep pace with inflation, potentially reducing real purchasing power over time.
Who Should Invest in Overnight Scheme?
- Investors looking for a safe place to park surplus cash for a short duration.
- Corporates or businesses seeking to optimize liquidity management.
- Conservative investors who want a low-risk alternative. (You are recommended to seek advice from financial advisor before you take any/refrain from any action)
Conclusion
Overnight scheme serve as an excellent short-term investment option for those who prioritize safety and liquidity over high returns. While they may not offer significant capital appreciation, they provide stability and security, making them a prudent choice for short-term investments.
Additional links:
What is a Mutual Fund? - Beginner's Guide to Investing
FAQ Section
What are Overnight Scheme?
Overnight Scheme are debt mutual fund scheme that invest in securities with a maturity period of just one day. This strategy ensures high liquidity and minimal risk, making them suitable for short-term investments. (You are recommended to seek advice from financial advisor before you take any/refrain from any action)
How do Overnight Scheme work?
These scheme invest in debt instruments that mature within one business day. Each day, the fund manager reinvests the matured funds into new overnight securities, maintaining a cycle that ensures liquidity and stability.
What are the benefits of investing in Overnight Scheme?
- Low Risk: Due to the daily maturity of investments, exposure to interest rate and credit risks is minimal.
- High Liquidity: Investors can redeem their investments quickly without significant loss.
- Stable Returns: While returns are relatively lower than other debt schemes, they are consistent and less volatile.
Who should consider investing in Overnight Scheme?
These scheme is ideal for investors looking to park surplus cash for a short duration, businesses seeking efficient liquidity management, and conservative investors seeking a low-risk alternative (You are recommended to seek advice from financial advisor before you take any/refrain from any action)
Are Overnight Scheme completely risk-free?
While they carry minimal risk due to the short maturity of their investments, they are not entirely risk-free. There is still a small degree of credit and interest rate risk associated with these funds.
What is the typical return on Overnight Scheme?
Returns on Overnight Scheme is modest, generally aligning with short-term interest rates prevailing in the market.. (You are recommended to seek advice from financial advisor before you take any/refrain from any action)
How liquid are Overnight Scheme?
Overnight scheme offer high liquidity, allowing investors to access their funds quickly, typically within one business day, without incurring exit loads or penalties.
What are the tax implications of investing in Overnight Scheme?
Interest earned on Overnight schemes is taxed as per the investor's income tax slab. This makes them less tax-efficient compared to tax-saving fixed deposits with longer lock-in periods. (You are recommended to seek advice from tax advisor before you take any/refrain from any action)
How can I invest in Overnight schemes?
Investors can invest in Overnight schemes through mutual fund companies, financial advisors, or online platforms. The process typically involves completing KYC (Know Your Customer) requirements and selecting a suitable scheme based on individual investment goals and risk tolerance.
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An Investor Education And Awareness Initiative
Visit https://www.hdfcfund.com/information/key-know-how to know more about the process to complete a one-time Know Your Customer (KYC) requirement to invest in Mutual Funds. Investors should only deal with registered Mutual Funds, details of which can be verified on the SEBI website (www.sebi.gov.in/intermediaries.html). For any queries, complaints & grievance redressal, investors may reach out to the AMCs and / or Investor Relations Officers. Additionally, investors may also lodge complaints directly with the AMCs. If they are not satisfied with the resolutions given by AMCs, they may raise complaint through the SCORES portal on https://scores.sebi.gov.in/scores-home/. SCORES portal facilitates investors to lodge complaint online with SEBI and subsequently view its status. In case the investor is not satisfied with the resolution of the complaints raised directly with the AMCs or through the SCORES portal, they may file any complaint on the Smart ODR on https://smartodr.in/login.
The information is for general purposes only and not an investment advice. Readers should seek professional advice before taking any investment related decisions.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY
