Overnight MF

What is it

Overnight funds invest only in instruments maturing the very next day — the safest possible debt fund category, since there's essentially no time for credit or interest rate risk to bite. Returns are correspondingly the lowest among debt fund categories, but so is the risk, making it the most conservative place to park an emergency fund.

SEBI created the overnight fund category in 2018 as part of its broader mutual fund categorisation reform, giving ultra-conservative investors (and corporate treasuries) a defined, lowest-risk debt category distinct from liquid funds.

Who it's best for

The most risk-averse emergency-fund parking option — for investors who want debt-fund convenience with practically zero credit risk.

Who should avoid it

You're comfortable with liquid funds' marginally higher risk in exchange for a somewhat better return.

Pros

• Among the lowest-risk mutual fund categories that still beats a savings account
• Virtually no credit risk given the 1-day maturity of holdings
• No lock-in, redeemable any business day

Cons

• Lower returns than liquid funds or sweep-in FDs
• No instant redemption facility in most cases — funds arrive the next business day
• Still technically market-linked, so returns aren't guaranteed like a bank deposit

Key ratios to check