Kolkata: The capital markets regulator Sebi has decided to alter cut-off timings for repurchase or redemptions of units in overnight funds to fix the NAV (net asset value). The regulator has stated in a circular that if an application is received till 3 pm, the closing NAV of the day immediately preceding the next business day will be considered and if the application lands after 3 pm, one should consider the closing NAV for the following business day. But if one applies online, the cut-off time should shift to 7 pm.
According to experts, the change will allow stock brokers and/or clearing members time to place redemption requests with AMCs after the closing bell of market hours. But what are overnight funds and what purpose do these serve? let’s have a closer look.
What is an overnight fund
Overnight funds refer to a type of open-ended debt mutual fund. As indicated by the word “overnight”, these funds invest in short-term, low-risk debt securities and the duration is just one day. Due to this ultra-short maturity tenure, these mutual funds have high liquidity. Naturally, these are designed for the use of those investors who want to park their excess funds for a short time, which could be a week or less. Overnight funds are never used to long-term wealth building by anyone.
Overnight funds are debt funds and the fund manager typically invests treasury bills and government securities which mature the next day. Since these instruments have negligible risk, overnight funds, too, suffer from very low degree of risk. Also, overnight funds typically carry no exit loads. The returns of these funds are predictable.
What is the difference between liquid and overnight funds
Overnight funds and liquid funds have some significant similarities — both are debt mutual funds and are targeted at short-term parking of funds. But they are quite different in investment strategy and maturity periods. Overnight funds typically put their money in overnight debt securities (commercial paper, certificates of deposit, treasury bills etc) and, therefore, have very high liquidity and minimal risk. On the other hand, liquid mutual funds invest in an array of debt securities that have longer maturity periods with a cap of 91 days. Liquid funds usually generate slightly higher returns and also bear a slightly higher risk than overnight funds, though liquid funds, too, are safe. The comparative higher risk of liquid funds originates from the fact that it might suffer from a bit of interest rate fluctuation since the tenure of investment is a bit longer compared to overnight funds.
(Disclaimer: This article is only meant to provide information. News9 does not recommend buying or selling shares or subscriptions of any IPO, Mutual Funds, precious metals and crypto assets.)
Sebi has announced that the cut-off timing to determine the NAV (net asset value) with respect to repurchase or redemptions of units in overnight schemes of mutual funds. The new schedule will come into effect from June 1, 2025. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
