Indiabulls has launched yet another open-ended debt scheme, Indiabulls Overnight Fund.

An Overnight fund is a category of debt scheme emerged after the SEBI’s recategorization norms.

It has the shortest investment duration of one day and provides better returns than bank FDs and are more liquid. The interest rate risk involved therein is least or almost zero. However, there can be a reinvestment risk, i.e. overnight funds may not be able to reinvest their proceeds at the same rate of return, but at least that doesn’t cause any capital erosion.

On the risk-return spectrum, overnight funds are placed at the lower end of the spectrum that carries the least amount of investment risk.

[Read:  Why Comparing Returns to Risk Is More Meaningful!]

Graph: Indicative Risk Return Matrix -Debt Categories

(Source: PersonalFN Research)

Since the debacle of IL&FS last September onwards, several other companies have been scrutinised and suffered a similar fate. This has pushed liquid funds and debt funds category under severe stress and distressed the investors.

[Read: Can You Ignore Default And Liquidity Risk While Investing In Debt Mutual Funds?]

Besides even the data released by AMFI for the month of May shows that there were a lesser number of inflows in debt funds of Rs 48,572 crore for the month of May 2019 as compared to April 2019 inflows of Rs 101,971 crore. From this, it is quite evident that investors have become more conservative and vying for options that are less risky. And the overnight fund is a plausible choice for the shortest duration of one day.

Several fund houses have been rapidly launching overnight funds in the market as they saw this as an opportunity to win back investors’ confidence with respect to debt fund investments. Hence, even the Indiabulls Mutual Fund joined its peers with its Overnight Fund.

Table 1: Details of Indiabulls Overnight Fund

Type An open-ended debt scheme investing in overnight securities. Category Overnight Fund
Investment Objective

To provide reasonable returns commensurate with low risk and providing a high level of liquidity, through investments made primarily in overnight securities having a maturity of 1 business day.

However, there can be no assurance that the investment objective of the scheme will be achieved. The Scheme(s) does not assure or guarantee any returns.

Min. Investment Rs 500 and in multiples of Re 1 thereafter Face Value Rs 1,000 per unit
  • Direct
  • Regular
* Default option
  • Growth*
  • Dividend
    • Re-investment facility*
    • Pay-out facility
    • Sweep facility
* Default option
Entry Load Not Applicable Exit Load Nil
Fund Manager Mr Malay Shah Benchmark Index CRISIL Overnight Index
Issue Opens June 20, 2019 Issue Closes: July 04, 2019

(Source: Scheme Information Document)

How will Indiabulls Overnight Fund allocate its assets?

Under normal circumstances, the scheme’s asset allocation pattern will be as under:

Table 2: IOF’s Asset Allocation

Instruments Indicative allocation (% of Net Assets) (Minimum-Maximum) Risk Profile (High/ Medium/ Low)
Overnight securities or debt instruments* maturing on or before the next business day 0% to 100%


*instruments with a residual maturity not greater than 1 business day, including money market instruments^, TREPS$ / reverse repo, debt instruments^^, including floating rate instruments, with overnight maturity. #The scheme may have exposure in the following:

^ Commercial papers, commercial bills, treasury bills, Government securities having an unexpired maturity up to one day, call or notice money, certificate of deposit, usance bill and any other like instruments as specified by the Reserve Bank of India from time to time. the pattern is to be altered for other reasons, as this is a fundamental attribute, the procedure outlined in the paragraph on fundamental attributes below, shall be followed.

^^Debt instruments would include all debt securities issued by entities such as banks, companies, public sector undertakings, municipal corporations, body corporates, central government securities, state development loans and UDAY bonds, recapitalization bonds, municipal bonds and G-Sec repos and any other instruments as permitted by regulators from time to time.

$ or similar instruments as may be permitted by RBI/SEBI.

The cumulative gross exposure should not exceed 100% of the net assets of the Scheme

(Source: Scheme Information Document)

What will be the Investment Strategy?

The scheme aims to identify securities which offer an optimal level of yields/returns, considering the risk-reward ratio. An appropriate mix of debt market securities and money market securities will be used to achieve this. The scheme will invest in Debt and money market securities getting matured on the next business day. Money Market securities include cash and cash equivalents.

With the aim of controlling risks, rigorous in-depth credit evaluation of the securities proposed to be invested in will be carried out by the fund manager and his team.

The credit evaluation includes a study of:

  • The operating environment of the company,
  • The past track record,
  • The future prospects of the issuer,
  • The short as well as the longer-term financial health of the issuer.

The Fund Manager will consider the ratings of such Rating Agencies as approved by SEBI to carry out the functioning of rating agencies. In addition, the investment team of the AMC will study the macroeconomic conditions, including the political, economic environment and factors affecting liquidity and interest rates.

The Fund Manager would use this analysis to attempt to predict the likely direction of interest rates and position the portfolio appropriately to take advantage of the same.

Further, the Scheme may invest in other liquid schemes managed by the fund house or in the liquid Schemes of any other Mutual Funds, provided it is in conformity with the prevailing Regulations. As per the Regulations, no investment management fees will be charged for such investments. For the present, the Scheme does not intend to enter into underwriting obligations.

However, if the Scheme does enter into an underwriting agreement, it would do so with the prior approval of the Board of the AMC/Trustee.

Who will manage the Indiabulls Overnight Fund?

The Indiabulls Overnight Fund will be managed by Mr Malay Shah.

Indiabulls Dynamic Bond Fund will be managed by Head of Fixed Income, Mr Malay Shah. He is a Commerce Graduate (B. Com) with MMS degree to his credit and has an experience of around 15 years in the field of finance, especially in Debt – Dealing and Fund Management.

Prior to joining Indiabulls Mutual Fund, he was working as the capacity of Head – Fixed Income with Peerless Funds Management Co. Ltd, managing all the debt Schemes.

Currently, some of the other schemes managed by him at the fund house include, Indiabulls Arbitrage Fund, Indiabulls Value Discovery Fund, Indiabulls Savings Income Fund, Indiabulls Liquid Fund, Indiabulls Ultra Short-Term Fund, Indiabulls FMP Series V-1175 days, Indiabulls Tax Savings Fund, Indiabulls Savings Fund, Indiabulls Dynamic Bond Fund, Indiabulls Equity Hybrid Fund and Indiabulls Nifty50 Exchange Traded Fund.

Table 3: Performance of the Schemes Managed By Mr Malay Shah

Scheme Name Scheme Benchmark Index Managing Since Scheme Returns (%) Benchmark returns (%)
Indiabulls Equity Hybrid Fund

CRISIL Hybrid 35+65 – Aggressive Index

Dec-18 19.09 13.08
Indiabulls Dynamic Bond Fund Crisil Composite Bond Fund Index Dec-18 11.84 11.75
Indiabulls Liquid Fund Crisil Liquid Fund Index Aug-14 7.76 7.58
Indiabulls Tax Savings Fund

S&P BSE 500 – TRI

Dec-17 -0.40 2.54

Indiabulls Ultra Short Term Fund

Crisil Liquid Fund Index Aug-14 8.58 7.58

Indiabulls Value Fund

S&P BSE 500 – TRI Sep-15 5.66 11.90

(Performance data as on June 28, 2019)
(Source: ACE MF-PersonalFN Research)

As it can be seen, most of the schemes managed by the fund manager have been outperforming with their respective benchmark index. His management style does give much confidence to investors.

The outlook for Indiabulls Overnight Fund:

Indiabulls Overnight fund will invest predominantly in overnight securities in an endeavour to achieve the stated objective of the scheme. It usually will invest in Debt and Money Market Instruments of privately placed, secured, unsecured, rated or unrated securities along with liquid schemes.

Securities in the debt market typically vary based on their tenure and rating. The major players in the Indian debt markets today are banks, financial institutions, mutual funds, insurance companies, primary dealers, trusts, pension funds and corporates.

In the 2nd bi-monthly monetary policy statement for 2019-20 (held in June 2019), the RBI reduced the policy rate by another 25 bps, placing the repo rate at 5.75% and consequently the reverse repo rate at 5.50%. This was the third consecutive reduction in policy in 2019. Taking cognisance of retail inflation still being within its comfort zone, the RBI took the decision of a 25-bps rate cut and changed the stance to accommodative.

So, currently, shorter maturity papers are more attractive. If you are extremely conservative and looking for a safer bet, you would be better off investing in overnight funds. But be sensible and create an astute investment strategy that paves the path to wealth creation and is always good for financial well-being.

Hence, the actual yields of the Indiabulls Overnight Scheme will vary in line with general levels of interest rates and debt/money market conditions prevailing from time to time and will be sensitive to systemic liquidity.

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