After the recent default at IL&FS, which hit liquid schemes, fund houses are now looking at overnight funds, which are less risky than liquid funds
In keeping with the recent industry trend of launching overnight funds, Essel Mutual Fund is contemplating launch of an overnight scheme, two sources from the fund house told Moneycontrol.
“We will be filing for the scheme (overnight fund) once the board approves it,” the source said.
After the recent default at IL&FS, which hit liquid schemes, fund houses are now looking at overnight funds, which are less risky than liquid funds.
Typically, large corporates park their surplus funds in liquid schemes which invest in commercial papers. Investments in commercial papers are safe but sometimes they are subject to default if companies fail to make a timely interest payment or principal repayment leading to credit rating downgrades.
Last month, IDFC Mutual Fund, Reliance Mutual Fund and DSP Mutual Fund have sought the Securities and Exchange Board of India’s approval to launch overnight funds. ICICI Prudential Mutual Fund and Aditya Birla Sun Life Mutual Fund have already launched their overnight funds.Overnight funds invest in collateralised borrowing and lending obligations (CBLO) and repo/reverse repo instruments that mature in one day, while liquid funds invest in treasury bills, commercial paper and certificate of deposit that have a maturity up to 91 days.