Though overnight funds have been around for years, the demand for these funds was muted until September last year.
AMFI latest data shows that the average AUM of overnight funds have grown five times over the last 10 months to Rs.52,524.98 crores on January 31, 2020, from Rs.11,566.84 crores on April 30, 2019. The number of folios under overnight funds at 46,763 as on January 31, 2020, have more than doubled in the last 10 months from 21,363 as on April 30, 2019, said AMFI.
Overnight funds invest only in overnight securities, which mature the next business day. These funds are a more conservative alternative to liquid funds. While liquid funds can invest in securities with maturity up to 91 days, overnight funds can only invest in securities with one-day maturity. Hence, overnight funds are considered most liquid and relatively safe debt schemes.
In a press release, NS Venkatesh, AMFI CEO said, “Overnight Funds are ideal for the first time investors, new to mutual funds. Although investments are market-linked, this category is considered to be a good start towards building a financially sound mutual fund portfolio. The fact that average AUM in overnight funds has grown five times and commensurate folios too, growing more than two times, is a very good indicator of the growing affinity of the investors towards overnight funds.”
Another reason for the growing popularity of overnight funds is introduction of graded exit loads in liquid funds. Many institutional players now look at overnight funds to park short-term funds.
