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Executive Summary – NSE has recently launched an overnight investment facility wherein people can invest excess money lying with the brokers in liquid mutual funds. Investors can make use of idle money by earning returns. This facility is available on BSE as well.
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The National Stock Exchange (NSE) has launched an overnight investment facility on its online mutual fund platform. Let us understand the concept and see if this is useful to retail investors. Suppose you buy and sell shares through a broker and you have sold shares worth Rs. 2 lakh today, you will get the money 2 days after the settlement date from the broker. Now many a times, investors do not take the money back from the broker in the anticipation that they might use the money to buy some shares again. This means, the Rs. 2 lakhs is lying idle without giving any returns. NSE allows the investors to park this money in a liquid mutual fund scheme so that the money is invested in the money market. This assures some returns and the money can be got back with a redemption request in case it has to be used to buy shares. Thus it helps in 2 ways – better utilization of cash and immediate availability of cash whenever required.
Let’s grow our money
This feature does look attractive from the top view but let us dig into details –
Bombay Stock Exchange (BSE) already has the facility of overnight investment in the Overnight Liquid fund for non-demat mode of transactions. The BSE StAR MF platform is to be used to invest in any liquid mutual fund.
- Many people use online trading accounts. Many brokers also offer online trading facilities. Here there is seamless transfer of money and people may not have much use of the facility of parking funds.
- Some brokers allow a trade only if there is money in the trading account. Overnight investment facility might not work for such cases always as you need to make a redemption request to get your money back in the trading account.
- It is not clear if part redemption is allowed for now.
- Carry forwarding of positions might be a little more complex now and brokers might withdraw that facility.
- There is a condition of physical transfer of documents to AMC/Agent which might be cumbersome for many investors.
- There might be a conflict of interest between broker and client. Sometimes brokers take a total of credit and debit in all accounts with them and report a net figure to the stock exchange. If investors start using overnight investment facility, brokers will have more debits than credits. Brokers can then start forcing clients to pay up. allow credit to a client.
Bombay Stock Exchange (BSE) already has the facility of overnight investment in the Overnight Liquid fund for non-demat mode of transactions. The BSE StAR MF platform is to be used to invest in any liquid mutual fund.
Though there are some issues for perfect transactions, the facility is still a useful way to make use of idle money, earn returns at lower risk levels.
*Investments in shares and mutual fund schemes are subject to market risks and there is no assurance on returns.
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