How companies use liquid and overnight funds to earn on money that sits between receipts and payment cycles.
Every business has a rhythm. Revenue arrives on its own dates through the month. Payments go out on fixed ones — vendors, salaries, contractual obligations, statutory dues, advance tax.
Between those two events, the money waits. And in a current account, it waits at zero percent. That is not a bank failing you; current accounts are designed that way.
For a company turning over meaningful volumes, that waiting period repeats every single month. The same surplus, idle for the same fortnight, month after month, year after year. The opportunity is not in earning a spectacular return — it is in earning anything at all on money that currently earns nothing.
The practical question is never whether to move money out of the current account. It is which portion, and for how long.
Most businesses can map this with reasonable confidence, because payment cycles are known in advance:
Cash needed almost immediately — imminent vendor payments, cheques in transit. Stays put, or goes to an overnight fund.
Surplus awaiting the salary run or a scheduled vendor cycle. The natural home for liquid funds.
Advance tax provisioning, bonus accruals, planned capex. Ultra-short or low duration funds.
Done properly, this is not a bet on markets. It is matching the maturity of your parking to the certainty of your calendar — the same discipline a treasury desk at a large company applies as a matter of routine.
SEBI applies a graded exit load on liquid funds redeemed within seven days of investment. It is small, but it exists deliberately — to discourage very short-term churn:
| Redeemed on | Exit load | What it means |
|---|---|---|
| Day 1 | 0.0070% | Highest, though still tiny in rupee terms |
| Day 2 | 0.0065% | Reduces each day |
| Day 3 | 0.0060% | |
| Day 4 | 0.0055% | |
| Day 5 | 0.0050% | |
| Day 6 | 0.0045% | Final graded step |
| Day 7 onward | Nil | No exit load at all |
This is precisely why the two fund types complement each other. Overnight funds carry no exit load, which makes them appropriate for gaps of a few days. Liquid funds become load-free from day seven, which makes them the natural choice once a cycle runs a week or longer.
Structuring surplus around this distinction is not a loophole. It is simply using each instrument for the purpose it was designed to serve.
The figures below are illustrative only, assuming a 6.5% annualised return. Actual returns vary daily and are not assured. They are shown to give a sense of scale, not to forecast.
| Surplus parked | 15 days | 30 days | 60 days | 90 days |
|---|---|---|---|---|
| ₹25 lakh | ₹6,678 | ₹13,356 | ₹26,712 | ₹40,068 |
| ₹1 crore | ₹26,712 | ₹53,425 | ₹1,06,849 | ₹1,60,274 |
| ₹5 crore | ₹1,33,562 | ₹2,67,123 | ₹5,34,247 | ₹8,01,370 |
Now apply tax. Assume a 25% effective rate. A company parking ₹1 crore for 30 days each month retains roughly ₹40,000 per cycle after tax — close to ₹4.8 lakh over a year, on money that was previously earning nothing.
That is the entire argument. Not a clever tax structure, not a market view. Simply this: a taxed positive return is still infinitely better than an untaxed zero.
| Current Account | Fixed Deposit | Liquid / Overnight Fund | |
|---|---|---|---|
| Return on idle balance | Nil | Fixed, contracted | Market-linked, not assured |
| Access to funds | Immediate | Locked for the tenure | Typically next working day; some schemes offer instant redemption within limits |
| Early withdrawal | Not applicable | Penalty, and reduced rate | No penalty; graded exit load on liquid funds only within 7 days |
| Partial withdrawal | Yes | Often breaks the deposit | Yes — redeem part, leave the rest invested |
| When tax falls due | Not applicable | On accrual, each year | On redemption, when you actually realise the gain |
| TDS | Not applicable | Applies on interest | No TDS on redemption for resident investors |
| Certainty | Total | High | Returns fluctuate; capital is not guaranteed |
A fixed deposit wins on certainty, and we will say so plainly when that is what a situation calls for. Where funds earn their place is flexibility and timing — when your cash requirement is uneven and you cannot commit to a tenure.
Two points, because both are frequently misstated:
Indexation no longer applies. For debt mutual fund units acquired on or after 1 April 2023, gains are taxed at the applicable rate regardless of holding period, with no indexation benefit. If you have seen indexation quoted as a reason to use debt funds, that position is out of date.
The genuine advantage is timing, not rate. Fixed deposit interest is taxed as it accrues, year after year, whether or not you have touched the money, and TDS is deducted along the way. Gains on mutual fund units are taxed only when you redeem, and resident investors face no TDS on redemption. Tax follows the cash rather than the calendar — which matters when you are managing working capital.
Tax treatment depends on your company’s structure, applicable rate and circumstances, and tax law changes. Nothing here is tax advice. Please confirm the position for your company with your Chartered Accountant before acting.
Any page that presents this as risk-free is not being straight with you.
Returns are not assured. Liquid and overnight funds are mutual fund schemes, not deposits. There is no guaranteed rate and no capital protection.
They carry credit and market risk. Liquid funds invest in money-market instruments of up to 91 days maturity. If an underlying issuer defaults or is downgraded, the fund’s value is affected. India has seen episodes where debt funds came under stress. Overnight funds carry the lowest risk in the category, which is precisely why they suit the very shortest gaps.
Returns move with interest rates. What a fund yielded last year tells you little about next year.
None of this makes these funds unsuitable for treasury use — large institutions use them routinely. It means the decision should be made with the risks understood, and with only that portion of surplus you can genuinely place at some risk.
The operational side is straightforward, though it does need doing properly once:
1. Corporate KYC. Completed once for the entity — PAN, incorporation documents, address proof, and details of authorised signatories.
2. Board resolution. A resolution authorising investment in mutual funds and naming who may transact on the company’s behalf. We provide a standard format.
3. Folio setup. The folio is in the company’s name. Units are held by the company, and redemption proceeds return to the company’s own bank account — never to us.
4. Cash-flow mapping. We sit with your finance team, look at receipts against payment dates, and identify which portion of the balance is genuinely idle and for how long.
5. Ongoing operation. Investments and redemptions timed around your cycle. Note that liquid and overnight funds have an earlier cut-off time than other schemes for same-day NAV, so timing the instruction matters.
• SMEs with uneven working capital — receipts through the month, payments on fixed dates
• Companies provisioning ahead — advance tax, bonuses, statutory dues held for a known date
• Professional firms — practices holding client or operational balances between cycles
• Trusts and societies — corpus and operational funds requiring both access and stewardship
• Businesses with seasonal peaks — surplus concentrated in some months, drawn down in others
If your current account balance rarely dips below a certain floor, that floor is the conversation worth having.
The most useful first conversation is a short one. Tell us roughly what your surplus looks like through a typical month and when your payment dates fall, and we will map what could realistically be working — and what should stay exactly where it is.
No obligation, and no pressure. If the answer is that your balance is already tightly deployed, we will tell you that.
Ace Financial Services
Kaustubh Valimbe — AMFI Registered Mutual Fund Distributor
ARN-110832 | EUIN E155215 | Pune, Maharashtra
Email: support@acefinservices.com
WhatsApp: +91 93733 34215