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Market Intelligence › Basic Terminologies
The difference between the two, the speed of redemption, and their right use
Published by The Retail Trader · JUL 27, 2026 · Mutual Funds & AMC
Some money is always money you do not want to deploy yet but also do not want to leave idle. These two categories are built for exactly that job.
An overnight fund invests only in instruments with a one-day maturity. This means almost no duration risk and no credit risk.
A liquid fund goes to a slightly longer maturity. Its return is usually a little higher, and it comes with a little more risk as well.
These funds are practical for the following purposes:
• The part of an emergency fund that is not needed immediately.
• Moving a large sum gradually into equity, through an STP.
• Keeping money for an expense due after a few months.
• Redemption usually arrives in one working day, and many schemes also have an instant window up to a limit.
The job of these funds is availability, not return. Chasing a difference of one or two basis points while comparing them misses the whole point — the most important thing is that the money is there when you need it.
This article is educational only — it is not a buy or sell recommendation, it makes no claim of guaranteed returns, and it is not advice. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or an official source.