Are overnight fund is a good choice for Short term investment?

Debt mutual funds are divided into different types of categories and most of these categories are characterized by the average maturity duration of the underlying assets. Long term debt funds invest in debt instruments which have an average maturity of 10-15 years while short term funds invest in instruments with a maturity of 5-10 years. Overnight funds, similarly, are debt mutual funds which invest in instruments with a maturity of only one day.

What is an overnight fund in India?

An overnight fund is a debt mutual fund which was introduced by SEBI in the year 2018. This fund invests in securities which have maturity duration of one day and hence they are called overnight mutual funds.

Features of overnight mutual funds

Here are the salient features of overnight mutual funds –

• The primary source of return for these mutual fund schemes is the interest income paid by the underlying security. Since these funds have a very short maturity period, there is no possibility of capital gains

• These funds invest in cash and cash equivalents like overnight repos, CBLOs, etc.

• If the interest rate is falling, the return of overnight funds decreases because of the increased liquidity in the market. On the other hand, when interest rates are rising, liquidity is limited and so returns on overnight funds increase

Are overnight funds good for short-term investments?

If you are looking to park your surplus funds for a very short time, i.e. for a few days, you can opt for the top overnight mutual funds. They give you the following benefits –

• They have a very low expense ratio, lower than 1%, giving maximum returns on your investments

• Since they are a type of debt mutual fund, they have no risk of market volatility

• Since the average maturity duration of the underlying assets is one day, there is negligible credit risk

• You can invest in overnight funds if you want to start an STP (Systematic Transfer Plan) into a mutual fund scheme and redirect your investments into equity in a systematic manner

So, if you have a very short term investment horizon, you can consider investing in an overnight fund in India. However, if your investment horizon is longer, i.e. you want to invest for a few weeks or months, liquid funds would be a better alternative as they would give you better returns than overnight funds.

Tax implications of overnight mutual funds

Being a debt mutual fund scheme, overnight funds have the following debt taxation –

• Returns earned within 36 months of investment are called short term capital gains. Such gains are taxable at your income tax slab rates

• Returns earned after 36 months of investment are called long term capital gains. You get the benefit of indexation on such capital gains and they are taxed @20%

However, since overnight funds are meant for short term investments, their returns would most likely be short term capital gains and would be taxed at your income tax slab rates.

Top overnight fund in India

Here is a list of the top overnight mutual funds which you can consider if you want to invest for a short term period –

Name of the fund	1-year return*	3-year returns*	5-year returns*
UTI Overnight Fund	3.74%	4.98%	5.98%
L & T Overnight Fund	3.71%	5.33%	5.95%
SBI Overnight Fund	3.69%	5.26%	5.75%

(*Returns as on 2nd November 2020) (Source: https://www.etmoney.com/mutual-funds/debt/overnight/59) 

Choose the top overnight mutual funds only if they meet your investment goals and if you want a short-term avenue for parking your funds. To invest, you can choose the best personal finance website of ETMONEY. ETMONEY offers you the ease of investing online which makes it the best personal finance website. Moreover, there is no commission involved and you can get your KYC verification online through scanned documents. So, choose ETMONEY’s best personal finance website and invest in overnight mutual funds for short term investments.

How ultra short term funds fit into your overall portfolio?

When you create a mutual fund portfolio, you should invest in different types of mutual fund schemes for a diversified portfolio. Your mutual fund portfolio should have equity as well as debt exposure and the choice of schemes should depend on your financial goals and investment horizon. If you need to park your surplus funds for a short period of time, investing in equity or long term debt funds would not be feasible. This is where ultra-short term mutual funds come into the picture.

What are ultra-short term mutual funds?

Ultra-short term funds are a type of debt mutual funds which invest their portfolio in debt instruments which have a short maturity period. Usually, the portfolio of ultra short term funds is invested in instruments with a maturity period ranging from 7 days to up to 18 months. Thus, though ultra short term funds are similar to liquid funds, their underlying assets might have a longer maturity period compared to those of liquid mutual funds.

Positioning ultra short term funds in your mutual fund portfolio

As ultra short term funds invest in instruments which have a low maturity period, you can invest in the best ultra short term funds for the following reasons –

1. For short-term investments

Ultra-short term mutual funds can be picked for parking your funds for a short term period, ranging from one to three months or more. If you would need money for fulfilling a short term goal, these funds would be the ideal choice. You can also consider investing in liquid funds as they also offer the facility of parking your surplus funds but their returns are lower than those offered by the best ultra short term funds. Since ultra short term funds have Macaulay duration higher than that of liquid funds, they offer better returns than liquid funds and are suitable for short-term investments.

2. For parking your investments during volatility

Ultra-short term funds can also be a suitable avenue if you are looking to safeguard your equity investments in a volatile market. If the market becomes erratic and starts falling, you can switch your equity investments to ultra short term funds for protecting the returns earned against market volatility. Ultra-short term funds are debt funds which remain unaffected from market volatility. Thus, you can invest in these funds for the time the market is volatile and then switch back into equity when the market stabilizes. This switching would not only protect your equity returns, it would also provide additional returns on the parked money and help your investments grow.

3. For STP or SWP investments

Instead of investing in a lump sum in equity, if you want to invest systematically, you can first allocate your investment in the top-performing ultra short term funds. Thereafter, you can choose the STP (Systematic Transfer Plan) option and gradually invest in equity mutual funds in a systematic manner to avoid market volatility. Alternatively, when withdrawing your investments, you can switch your investments to the top-performing ultra short term funds and then withdraw the investment in a systematic manner rather than in lump sum. This systematic withdrawal would give you additional returns for staying invested and such returns would also be independent of market volatility.

Thus, ultra short term funds can be used for any of the above-mentioned reasons and find a place in your overall portfolio. 

Some of the best ultra short term funds, for your investment needs, are as follows –

Name of the fund	1-year return*	3-year return*	5-year return*
ICICI Prudential Ultra Short Term Fund	7.82%	8.08%	8.77%
PGIM India Ultra Short Term Fund	6.65%	9.44%	8.9%
Aditya Birla Sun Life Savings Fund	7.51%	7.85%	8.15%
SBI Magnum Ultra Short Duration Fund	6.56%	7.58%	7.49%
Kotak Savings Fund	6.76%	7.53%	7.73%

(Returns as on 23rd October 2020)

(Source: https://www.etmoney.com/mutual-funds/debt/ultra-short-duration/56)

To invest in the top-performing ultra short term funds, you can download the ETMONEY App. The ETMONEY App is a mobile application which helps you fulfil all your personal finance needs. Through the app, you can invest in mutual funds, NPS scheme, fixed deposits and also insurance plans. You can also borrow loans for your financial needs. When it comes to mutual fund investments, the ETMONEY App is the best solution as it offers you the choice of the best fund schemes and that too at zero commission rates. 

So, choose the best ultra short term funds for your investments needs and invest in them through the ETMONEY App for the best investment experience.

 

Start your investment journey with ETMONEY

While you toil day in and day out if you don’t save and invest, how would you create funds for your goals? Investments are necessary so that you can create sufficient funds over time to meet your financial goals. When you invest, your investments generate returns on the amount that you put in. These returns grow over time through compounding creating a sizeable corpus. Then, when you need funds to meet your financial goals, this accumulated corpus steps in to fulfil your needs. So, while your goals are your destination, investments are the road to reach it.

To invest, there are different investment avenues available in the market. You can invest in fixed deposits, mutual funds, NPS scheme and also buy insurance policies for financial security. Different types of investments might require you to invest through different platforms. How about cutting down the hassle and investing through one single platform?

The ETMONEY Investment App provides you with a one-stop-shop for buying different types of investment avenues. You can simply download the ETMONEY App on your Smartphone, register yourself and begin your investment journey in the simplest possible way. 

The investment avenues which you can find on ETMONEY Investment App are as follows –

1. Term insurance 

Life throws challenges at your way and in case of premature demise of the bread-winner the family might suffer a considerable financial loss. ETMONEY App, therefore, offers term life insurance plans which help you secure the financial risk of premature death. The application has some of the best term insurance plans which provide a comprehensive scope of coverage at the best premium rates.

2. Health insurance 

Medical costs have become prohibitive and if there is a medical emergency, you might face a considerable financial strain to pay for the expensive cost of treatments. Health insurance plans, therefore, come to your rescue and cover the medical expenses incurred in an emergency. They protect your savings and are a must. The ETMONEY Investment App allows you to compare and find the best health insurance policy for all-round protection and offers such plans at the best premium rates.

3. Car or Bike insurance

If you own a car or a bike you need a compulsory insurance cover on the vehicle. This cover can be found on ETMONEY’s platform. You can buy a car or a bike insurance policy through the application in simple steps.

4. Mutual funds

Mutual funds help you to earn good returns on your investments and also get tax benefits. Moreover, there are different types of mutual fund schemes which you can choose as per your risk appetite and investment needs. ETMONEY App offers you a choice of the best mutual fund schemes for investment. You can choose from equity mutual funds, debt mutual funds, hybrid funds, gold funds, international funds, etc. There is zero brokerage or commission charged by ETMONEY allowing you to allocate the maximum portion of your investment towards the mutual fund scheme and get a high return. You can choose to invest in instalments through SIPs or in a lump sum and even track your investments using the ETMONEY Investment App.

5. NPS scheme

Retirement planning is essential to living a financially independent life even after retirement. So, to allow you to plan for your retirement, the ETMONEY App offers you NPS investment which is a long-term, market-linked retirement oriented scheme. You can open an NPS account online through the application with minimal formalities and paperwork.

Besides these investment avenues, the ETMONEY App also offers loans and credit cards for your financial needs. The application is, therefore, provides you with a unified interface to transact and invest. You can monitor, manage and redeem your investments easily with your Smartphone through the ETMONEY Investment App. So, what are you waiting for? Start your investment journey today so that you can build up a considerable corpus with time. Download the ETMONEY App and choose from the different investment avenues to build up a diversified financial portfolio. 

Factors That Determine the Risk in a Debt Fund

Debt mutual funds are those which are said to have a low risk of market volatility as they invest in fixed income instruments like bonds, deposits and money market instruments. Thus, debt mutual funds are preferred by investors who do not like market risks and want stable returns on their investments. That being said, it is a mistake to believe that debt mutual funds do not carry any risk at all. The returns offered by debt mutual funds are not guaranteed because these funds are also exposed to certain risks. So, when you invest in debt fund online, you expose your investments to such risks. Do you know which risks are associated with debt mutual funds?

Debt mutual funds basically have two types of risks – credit risk and interest rate risk. Let’s have a look at these risks in details –

What is credit risk?

Credit risk is also called default risk. It is the risk of default of realisation of the invested deposit. Debt mutual funds invest in bonds and money market instruments which promise a guaranteed rate of return on investment. These instruments also have a maturity period after which the invested money is returned. If, however, the instruments fail to return the deposit or the interest thereon after maturity, it would be a default and the risk of non-payment of the deposit is called the credit risk or default risk.

Credit risk of a debt instrument is measured by credit rating agencies which rate the instruments based on their repayment capacity. The ratings can be AAA, AAA+, AAA-, B, D, etc. The higher the rating the lower would be the credit risk. Thus, fund managers try and pick debt instruments which have a high credit rating so that the credit risk of the portfolio is minimized. Moreover, if the instrument carries a high credit risk, it would also offer a higher return. So, if you are investing in a debt fund online which has a high return, you should check the credit rating of its underlying assets.

The credit rating of instruments is done periodically and if the rating of an underlying asset falls, the value of the asset also falls, which, negatively impacts the debt fund portfolio.

What is the interest rate risk?

Interest rates on debt instruments are not fixed. They are dynamic in nature which changes with the changing economic conditions. If the interest rates rise in the markets, the market price of the bond falls and vice-versa. Since debt mutual funds invest in bonds, a fall in the bond price reduces the fund’s value and the returns are reduced.  

So, when you are looking for the best debt fund, consider the interest rate risk of the fund vis-à-vis the modified duration. The concept of modified duration is used to measure the price sensitivity of the bond with a specified change in the interest rate. When the change in the rate of interest is multiplied by the modified duration, the expected change in the price of the debt fund can be ascertained. 

To invest in the best debt fund, choose funds whose portfolio has lower weighted average maturity duration. Such funds carry a lower interest rate risk than funds whose portfolios have a longer weighted average maturity duration.

Factors which determine the credit risk and interest rate risk in a debt fund include then following –

• Repo rate – if the repo rates fall, the value of the debt fund portfolio rises

• FII investment – if there is a heavy FII investment in debt instruments, the value of the debt fund portfolio would rise

• Domestic and international economy – economic factors directly impact the interest rates on debt instruments. They, therefore, directly impact the interest rate risk carried by debt mutual funds

Bear in mind these risks inherent in debt mutual funds when you invest in them. To invest in a debt fund online you can download the ETMONEY APP. It is a personal finance app which allows you to invest in the best debt fund. You can compare the performance of different debt fund online through this personal finance app and then choose one which offers the best returns at minimal risks. You can also invest online with minimal hassles at zero commissions and start your debt fund investments instantly. So, know the risks of debt funds and then invest in them through ETMONEY’s personal finance app for ease and convenience.

Explain HDFC Mutual Fund & its top-performing Funds in India

Established in the year 1999, HDFC Mutual Fund is one of the largest and the most premier mutual fund companies in India. HDFC Mutual Fund boasts of having an AUM of Rs.3.2 trillion which is the largest managed funds by a mutual fund company in India. HDFC Mutual Fund has been established as a joint venture between the Housing Development Finance Corporation Limited and the Standard Life Investments Limited. The company listed itself on the Indian stock exchange in the financial year 2018-19 by introducing an IPO for 20% of its share capital which is publicly held. HDFC Asset Management Company is tasked with the management of the assets of HDFC Mutual Fund.

HDFC Mutual Fund offers a range of mutual fund schemes in different asset classes allowing you to choose a scheme as per your investment need and risk appetite. The company enjoys a customer base of 9.4 million accounts invested in different mutual fund categories. The top HDFC fund managers ensure that the company’s mutual fund schemes offer the best returns making the schemes popular among investors. Some of the top-performing HDFC mutual funds are listed below:

Top-performing HDFC Mutual Funds

• HDFC Gold Fund

This is a Fund of Fund which invests in HDFC Gold Exchange Traded Fund, another mutual fund scheme offered by HDFC Mutual Fund. Since the valuation of gold is increasing in the current pandemic as it is considered a safe haven for investment, HDFC Gold Fund can be chosen to get attractive returns. The risk profile of the scheme is moderately high and the investment objective is capital appreciation. The returns offered by the scheme are as follows –

Name of the fund	1-year return*	3-year returns*	5-year returns*
HDFC Gold Fund	35.3%	18.1%	13.4%

• HDFC Tax Saver Fund

ELSS schemes are popular among investors because of the distinct tax advantage that they offer. HDFC’s Tax Saver Fund is an ELSS scheme which allows you to save tax on your investments under Section 80C. Moreover, the returns earned are also tax-free up to Rs.1 lakh. HDFC Tax Saver Fund’s benchmark index is Nifty 500 Total Returns Index and the scheme offers good returns over a long term investment horizon. The returns earned by the scheme over time is as follows –

Name of the fund	1-year return*	3-year returns*	5-year returns*
HDFC Tax Saver Fund	-3.19%	-2.21%	5.36%

• HDFC Corporate Bond Fund

A debt oriented mutual fund, HDFC Corporate Bond Fund invests in fixed-income instruments for stable returns in times of market volatility. The top holdings of the scheme include securities issued by the Government of India, bonds of State Bank of India, Rural Electrification Corporation Limited and Housing Development Finance Corporation Limited among others. The returns are as follows –

Name of the fund	1-year return*	3-year returns*	5-year returns*
HDFC Corporate Bond Fund	10.76%	8.79%	9.14%

• HDFC Multi-Asset Fund

This is a hybrid fund that invests in both equity and debt for moderate risks and moderate returns. The fund invests in multiple types of assets which facilitates diversification to bring down the inherent risk of the portfolio. The returns offered by the scheme over the years are as follows –

Name of the fund	1-year return*	3-year returns*	5-year returns*
HDFC Multi Asset Fund	14.6%	6.84%	8.1%

• HDFC Liquid Fund

Liquid funds are ideal for short-term investments as they give better returns than other bank deposits and allow you to redeem your fund instantly. HDFC Liquid Fund has an AUM of Rs.80, 165 crores and follows the CRISIL Liquid benchmark. Managed by the top HDFC fund managers, the returns offered by the scheme are as follows –

Name of the fund	1-year return*	3-year returns*	5-year returns*
HDFC Tax Saver Fund	4.89%	6.38%	6.78%

These are some of the best mutual fund schemes offered by HDFC Mutual Fund. To invest in any of these top performing HDFC mutual fund schemes you can choose www.etmoney.com. ETMONEY is the best personal finance platform which allows you to invest in mutual funds at the click of some buttons. The reason why ETMONEY is called the best personal finance platform is because of the ease of transaction it offers paperless purchases and zero commissions on its sales. So, to invest in mutual funds online, you can choose ETMONEY. HDFC offers a range of mutual funds managed by the top HDFC fund managers. Invest in HDFC’s funds for wealth creation and choose the best personal finance platform of ETMONEY for your transactions for ease and simplicity.

*Returns as on 11th September 2020.