Overnight funds vs. Liquid mutual funds

Both overnight funds and liquid funds are types of short-term mutual funds. While overnight funds invest in single-day securities, liquid funds invest in short-maturity instruments that typically mature within three months. Both are low-risk investments, with liquid funds running a slightly higher credit risk than overnight funds. To understand both the funds better, here is a look at the key differences between the two:

Differences Overnight Fund Liquid Fund
Investment maturity The overnight funds invest in instruments with a residual maturity of one day. Liquid funds invest in instruments with a residual maturity of fewer than 91 days.
Invests in Overnight funds invest in collateralized securities maturing in one day, mostly in Tri-Party Repo. Liquid funds invest in instruments that have a maturity tenure of fewer than 91 days. It invests in debt and money market instruments like certificates of deposits and commercial papers.
Risk With the maturity of a single day, overnight fund investments don’t have any interest rate risk. Liquid funds invest in non-collateralized securities as well, so there is a little more credit risk and interest rate risk involved.
Transparency The NAV of an overnight fund is a true reflection of the portfolio value on any given day. Some of the investments made by a liquid fund may not be valued on a market-to-market basis. Any devaluation in security affects the portfolio value.
Returns The return in overnight funds is closely linked to the RBI repo rate. Its return is therefore sensitive to the liquidity position in the market. A liquidity shortage in the market can increase the return on overnight funds. Along with the higher risk, liquid funds offer a higher return on investment. It can invest in multiple investment options and see higher appreciation over the comparatively longer maturity period.
Exit load There is no exit load in overnight funds. There is a declining exit load in liquid funds in the first six days. There are no exit loads after seven days.
Purpose Overnight funds are ideal for emergency fund investments. Liquid funds can be used to earn a short-term profit on surplus funds that would otherwise lie idle.

Apart from the differences, there are a few similarities between overnight and liquid funds as well. For instance, both are open-ended debt funds with high liquidity. They have a low expense ratio and are safer than most mutual funds. Rather than SIP, they are used as part of systematic transfer plans.


With relative safety, you can invest in overnight and liquid funds to derive better returns than your bank account or FD interest. Be it opening a SIP or investing in these short-term funds, the Tata Capital Moneyfy App is a convenient way of creating a presence in mutual funds. With its insights and analytics, the Moneyfy App is helpful for any new or seasoned investor who wishes to expand and continue their mutual fund investments.

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