Investors who want to temporarily park surplus money without taking significant interest-rate risk can explore overnight mutual funds. These schemes invest exclusively in securities that mature on the next business day, making them one of the lowest-risk funds.
Unlike longer-duration debt funds, are not significantly affected by fluctuations in bond prices driven by interest rate changes. Instead, they try to generate modest returns by continuously investing in one-day money market instruments.
Based on one-year CAGR performance, Bank of India Overnight Fund emerged as the best-performing scheme in the category, followed by Franklin India Overnight Fund and Bajaj Finserv Overnight Fund.
What are top 5 overnight funds by 1-year returns?
| Fund Name | 1-Yr CAGR |
| Bank of India Overnight Fund | 5.59% |
| Franklin India Overnight Fund | 5.40% |
| Bajaj Finserv Overnight Fund | 5.39% |
| Tata Overnight Fund | 5.38% |
| Axis Overnight Fund | 5.37% |
*Return as on 1 July, 2026, Direct Plans, Source: Value Research
Bank of India Overnight Fund topped the category with a 1-year return of 5.59%. Over shorter periods, it generated 1.44% returns in the last three months and 2.75% over the past six months.
Franklin India Overnight Fund ranked second, delivering a 1-year return of 5.40%. The fund returned 1.29% over the last three months and 2.59% over the six-month period.
What is an overnight fund?
An overnight fund comes under the category of debt mutual funds. As per the Securities and Exchange Board of India (), these schemes are allowed to invest only in overnight securities that mature within one business day.
The portfolios typically include instruments such as TREPS (Tri-Party Repo), reverse repos, treasury bills and other overnight money market securities. Since these investments mature the next working day, the portfolio is refreshed daily, allowing the fund to maintain an extremely short maturity profile.
The structure results in little to no interest-rate risk while keeping credit risk relatively low, as the underlying instruments are generally backed by high-quality collateral or counterparties. Investors also benefit from high liquidity, with redemption proceeds typically credited on a T+1 business-day basis.
How do overnight funds help investors?
Instead of leaving surplus cash idle in a savings bank account, investors can consider parking it in an overnight fund to earn modest returns, even if the investment is only for a few days.
These funds carry the lowest risk among mutual fund categories, making them a suitable option for investors prioritising safety and liquidity in the short term.
They are also well-suited for keeping an emergency corpus, as they offer high liquidity while allowing the money to generate some returns until it is needed.
However, overnight fund returns are not fixed, and these funds are not entirely risk-free. Since these funds reinvest in one-day securities every business day, their yields can change with movements in short-term interest rates and RBI policy decisions.
Disclaimer: This is purely for educational/ informational purposes and should not be taken as any sort of investment advice. Always consult a SEBI-registered advisor before making any investment decisions.