A mutual fund is a professionally managed company that collects money from many investors and invests it in securities such as stocks, bonds and short-term debt, equity or bond funds and money market funds.
Mutual funds are a good investment for investors looking to diversify their portfolio. Instead of betting everything on one company or sector, a mutual fund invests in different stocks to try to minimize portfolio risk.
The term is typically used in the US, Canada and India, while similar structures around the world include the SICAV in Europe and the open-ended investment firm in the UK.
What are overnight funds?
Overnight funds are considered the safest of all mutual funds. If you are new to mutual funds and want to try them out before you go around all the pig, then overnight funds are for you.
Overnight funds are a type of open-ended debt scheme that invests in debt securities that mature the next day. This means that the securities in the portfolio mature every day, and the fund manager uses the proceeds to purchase new securities for the portfolio that accrue the next day. Because the securities of these funds mature the next day, these funds are not exposed to the type of interest rate risk or default risk like the rest of debt funds. This low-risk profile also implies that they offer the lowest return.
Overnight funds are suitable for businessmen or entrepreneurs who constantly need to park large sums of money for very short periods of time until they can be distributed elsewhere. It is better to invest excess money in an overnight fund and earn some return, even if it is for a few days, instead of leaving the money idle in a checking account. They are also ideal for building emergency funds if you want to set aside some money for emergency needs. Your investment can gain some growth while remaining within reach as these funds also offer maximum liquidity.
