Owing to the poor performance of liquid funds, there has been a noticeable shift of debt-based investment option towards overnight Mutual Funds. The steep inclination can be accredited to the fund's investor-friendly features and their associated benefits.
The Overnight Fund is described by the Securities and Exchange Board of India as an open-ended debt Mutual Funds schemes that park money into overnight securities. In other words, it is a liquid form of a particular debt fund.
Investors who wish to put their money in such schemes put forward a purchase and redemption request for their choice of overnight funds during the trading hours.
At the beginning of each business day, the Asset Under Management (AUM) is in cash amount. The bonds are purchased overnight, and they mature by the following business day. Fund managers tend to take the cash amount to buy more of such bonds overnight, and the cycle continues.
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The purpose of overnight funds is to offer investors the ability to use their cash reserve in a better and profitable way. The following features of the funds make its purpose more feasible -
Like debt funds, an overnight fund is subject to taxation. If an investment is held for more than 3 years, it will be subjected to the long-term capital gains tax with indexation.
In the case of indexation, debt funds are taxed at a rate of 20%. While in the case of funds without indexation, they are charged at the rate of 10%.
If an investor decides to sell off their funds before three years; they must pay a tax that matches their tax slab.
If an investor decides to opt for the dividend option, they need to pay 29.12% as dividend distribution tax on theirovernight fund.
An overnight fund is a suitable option for those investors who want to invest their money in a fund but only for a short time. Since these funds do not get affected by the changes in interest rates and other defaults in securities, it is a safe debt Mutual Funds to invest in.
Here is a list of other benefits of the overnight Mutual Funds India in details -
If there is any risk at all, the regular change in the fund's portfolio helps cushion them immediately.
To make the most of their investments in an overnight fund, investors must equip themselves with proper knowledge about how it functions in different situations.
Investors should also clear their misconceptions when it comes to the risk-reward aspects of debt funds. It will help them understand what to expect from their investment in overnight fund Mutual Funds India.
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