Using Overnight/Liquid funds to earn more
WHAT ARE OVERNIGHT AND LIQUID FUNDS? Overnight and liquid funds are a category of debt mutual funds. Overnight funds have a portfolio that invests in securities that mature in a single day, while liquid funds invest in debt and money market securities that mature within 91 days. They buy short-term instruments like treasury bills and government securities. Combined, these schemes manage close to Rs 5.73 lakh crore of assets.
WHY ARE THE TYPICAL RETURNS FROM THESE FUNDS?
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View Details» <div data-placement=«Mid Article Thumbnails» data-target_type=«mix» data-mode=«thumbnails-mid» style=«min-height:400px; margin-bottom:12px;» class=«wdt-taboola» id=«taboola-mid-article-thumbnails-108250372»>Many investors tend to keep money idle in savings bank accounts to meet near-term goals like paying school /college fees, vacation, or buying electronic goods 3-6 months later. Wealth managers believe such money can be put to better use by investing in a liquid or overnight fund. Money in an investor’s savings account of reputed nationalised or private sector banks earns an interest of 2.7-3%. Despite a rise in interest rates across the board, banks have not hiked savings account rates. However, bond yields have increased the returns of debt mutual funds. Currently, investors can earn 6.5-7% on their investments in overnight and liquid funds, double that of a savings account.
WHAT IS THE TIME HORIZON AND MINIMUM INVESTMENT AMOUNT? Financial planners suggest investors should use overnight funds if they have a time frame of one day to a week, while they can use liquid funds if they have a time frame of seven days to three months. Liquid funds
