0 duration risk, 0 credit risk

Aditya Birla Sun Life Overnight Fund

Credit risk has become a core concern for advisors in the aftermath of the IL&FS default and the subsequent panic within the NBFC/HFC space. Volatility in liquid and ultra short term funds is a phenomenon that we have seen in recent weeks. For advisors and investors who want to eliminate duration as well as credit risk for their very short term surpluses, the fund industry has a solution in the form of Overnight Funds.

Aditya Birla Sun Life has now launched its Overnight Fund which will invest in money market & debt instruments of 1 day maturity i.e. any given day the fund manager will invest the money in to the instrument with maturity upto 1 day. Owing to this strategy the fund carries no duration risk and no credit risk. This makes it the safest possible investment avenue for an investor for very short term investment tenors and one who seeks to avoid volatile market cycles.

Apart from offering a safe solution for very short term surpluses, overnight funds are also useful as temporary parking spaces while longer term investment plans are drawn up. If you are worried about instability in the fixed income market, and don’t want an unpleasant short term experience with an ultra short term fund or a liquid fund to derail the long term investment plans you are drawing up for your client, prudence would suggest parking the money in overnight funds – which make switches into debt and equity funds easy while at the same time ensuring that no accidents happen with the temporarily parked money.

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