Overnight funds in the fast lane

The average assets under management (AAUM) in overnight funds, that fall under the income/debt oriented category of mutual funds, grew over 354% or more than quadrupled since April last year to ₹52,524.98 crore at the end of January.

During these ten months, the investor folios in these schemes, which grew from 16 to 30, also more than doubled to 46,763. Overnight funds within the open-ended debt mutual fund schemes are the newest category investing in debt and money market instruments with overnight maturity of just a day. The average AAUM stood at ₹11,566.8 crore at the end of April last year.

Interestingly, while the AAUM at the end of January has crossed the ₹50,000 crore mark after 10 months, the funds mobilised by these schemes crossed ₹5.70 lakh crore in December 2019.

Overall, fund mobilisation in overnight funds have seen an absolute growth of 1,566.96% to ₹5,26,475.95 crore in January 2020, up from ₹31,583 crore during April 2019. It took six months, until September last year, for the monthly mobilisation to cross ₹1 lakh crore mark, and in the next four months the mobilisations grew over 5.5 times to touch ₹5,70,207.6 crore in December, last year.

The category was introduced after SEBI re-categorised mutual fund schemes, both equity and debt, in order to bring uniformity in products, in October 2017. These funds are considered most liquid and also relatively safe debt schemes for investing.

“Overnight funds are ideal for the first time investors who are new to mutual funds,” says NS Venkatesh, chief executive of the Association of Mutual Funds in India (AMFI). “Although investments are market-linked, this category is considered to be a good start towards building a financially sound mutual fund portfolio,” Venkatesh adds.

According to Venkatesh the doubling of the investor folios in overnight funds is a good indicator of the growing affinity of investors towards such funds. These funds make for a good investing option owing to their investment horizon of just one day. Dynamic factors like changes in interest rates, yields, as well as likely default on securities invested in are not expected to impact such funds.

For retail investors who want a safer investment alternative for their idle money, without getting locked-in for a longer period, overnight funds are the best bet. However, the returns that such funds generate on smaller outlay may not look attractively huge.

For corporate investors with spare liquidity, overnight funds offer a safer alternative to traditional liquid funds owing to the nature of these products.