Overnight Mutual Funds. Have they caught your fancy?
Let us find out if they are better than fixed deposits.
Overnight mutual funds as the name suggests are for parking your money for as less as one day. They are safer than debt funds or liquid funds and do not have interest rate or credit risk. They invest in bonds with maturity of one day. These have come up rapidly over the last year due to various risks that have rocked the debt fund category and made everyone doubt how safe debt funds are.
This discussion entirely focuses on keeping your money aside for a short-term need. These are not investment suggestions. If you are looking for returns, you will have to take higher risk.
If you are happy with parking your money in Savings account for immediate needs, and part of your money parked in Fixed deposits for short term needs, you really don’t have to bother about doing anything else. You are doing just great.
If you are an investor and want to hold on to your money before investing for a short time, you may consider this.
A fixed deposit is a very simple instrument where you get a fixed rate of return. If interest income is more than 40,000, tax is deducted at source at the rate of 10% by the bank. If your total income falls below the tax slab and do not want the bank to deduct tax, you must submit Form 15G and Form 15H to the bank.
Overnight Mutual Funds are a part of debt funds hence they are taxed as below:
· If holding period is less than 36 months, taxed as per income slab
· If holding period is more than 36 months, taxed at 20% with indexation benefit.
You can redeem your units through the Mutual Fund House directly online. You will get the money on the next business day. You can also redeem through other ways like any direct investment platform that you used to invest the money or physically through the branches.
Some of the overnight funds you may consider (not in order) are:
SBI Overnight Fund
UTI Overnight Fund
HDFC Overnight Fund
L&T Cash Fund
You don’t necessarily need to try out every new thing that comes up in the market. Finances are best handled in simple ways. The key is to clearly understand what you are putting your foot into. If you don’t, it is best to stay away or consult a fee-only financial advisor.