An Overnight Fund can only invest in securities with maturities up to 1 days. This means that there is no interest rate risk. Overnight funds predominantly invest only in an instrument called Triparty Repo (TREPS) through CCIL which acts as a counter party to all trades. Which means there is no default risk.
How TREPS works
We had done a webinar with Anil Ghelani from DSP MF and he talks at length about TREPS in it.
