Overnight funds are open ended debt schemes which invest in overnight securities with a maturity of one day. The scheme seeks to generate reasonable income, with low risk and high level of liquidity from a portfolio of overnight securities having a maturity of one day. Overnight Funds is one of 16 debt mutual categories notified by SEBI in its October, 2017 classification of the Debt Mutual Funds and accordingly aligned by the Mutual Fund AMCs.
The Overnight funds invest predominantly in the CBLO (Collateralized borrowing and lending obligation) instruments. Collateralized Borrowing and Lending Obligation (CBLO) market is a money market segment operated by the Clearing Corporation of India Ltd. In the CBLO market, financial entities can avail short term loans from 1 day to 1 year by providing government securities as collateral and the lenders will get these securities as collateral while giving loans . While n terms of functioning and objectives, the CBLO market is akin to call money market, what differentiates it is that lenders and borrowers use collateral for their activities.
Collateralised Borrowing and Lending Obligation (CBLO) money market was created. as non banks are not allowed to participate in call money market with effect from August 2005, and CBLO money market facilitates non banks participation in money market in a Collateralised secure environment. In CBLO money market, borrowing and lending is in fully secured environment with Government securities used as collateral. This gives an edge to Overnight funds over all other short term Debt funds including Liquid Funds.
Overnight Funds: Who should Invest
- For Investors whose primary goal is to to ensure that chances of of capital erosion should be very low and investors want to minimize risk due to default or interest rate changes
- Suitable for Investors looking to park their surplus fund lying idle for short duration from one day to typically less than a month
- Investors looking for high level of liquidity
- In Turbulent times in Debt market when safety and liquidity becomes the prime concern
- Risk averse investors
- Institutional Investors who need to maintain Liquidity
Overnight funds are operated by few fund houses as on date. CRISIL CBLO Index is the benchmark index for these funds. The scheme carries Zero entry and exit load.
Performance of Overnight fund Schemes:
UTI Overnight Fund
HDFC Overnight Fund
SBI Overnight Fund
L&T Cash Fund*
|AUM in crore||28.59||146.07||142.17||423|
|Volatility (Std Deviation)||1.18||0.13||0.13||0.24|
|* Overnight Fund from Apr 2018|
Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I have however been investing in mutual funds for more than two decades now and have also passed NISM Series V-A: Mutual Fund Distributors Certification Examination purely for better understanding of the subject. Please do your own due diligence as stock market and Mutual Fund investments have good degree of inherent risk.