What are Liquid Assets?
Assets that can be sold and converted into money in a short period are considered liquid assets. It is vital to invest liquid assets as much as possible so it will be helpful in times of crisis or emergency. Also, there will be only a minimum loss when we convert a liquid asset. Or the value will be the same even when you convert your liquid assets into money.
Factors/ Characters of Liquid Assets:
To be considered a liquid asset, it should meet the following factors:
Should be in the market. A large number of customers should be interested in buying it. Transferring ownership should be easy.
Examples of Liquid Assets:
Some the examples of liquid assets are:
CashCash in the bank accountPrecious metals Stocks and sharesMutual funds Government BondsAccrued incomePromissory notes
Explanation of Liquid Assets:
Cash:
Because it is readily available, cash is the first thing considered a liquid asset. Even money in your bank account can be considered a liquid asset. In short, cash is the supreme liquid asset.
Cash in Bank account:
Money in a current account or savings account, if withdrawn easily, is considered a liquid asset. This is because it can be easily withdrawn at the time of emergency. However, if your money is in a fixed deposit or any other accounts in which you can withdraw the money for an emergency, then it will not come under liquid assets.
Precious metals:
Gold and silver are the first things that come to our mind when we think of Precious metals. Because they are the most commonly sold items in the market. In addition, many people are attracted to buying jewelry made of precious metals. In countries like India, many Middle-class people see Gold jewelry as their main investment. And Gold or other Precious metal can be sold easily for cash with only a negligible loss.
Stocks and shares:
The knowledge and awareness of the stock market are increasing today. Even many people now want to have a proper understanding of the stock market and invest in it wisely. The stocks and shares you buy can be considered liquid assets as you can easily sell your shares for quick returns. However, a profit or no loss is not guaranteed. One should have the knowledge and understanding when it comes to stock market investments.
Mutual funds:
Mutual funds are also considered a liquid asset as quick selling is also possible in them. A mutual fund is a form of investment in which several investors come together to invest their money. These investors collectively invest money in some bonds, securities, etc. Their pool of money is managed by a money manager who will be a professional. This manager is responsible for producing profits and sharing them among the investors.
Government Bonds:
When a central or state government faces a crisis or has a shortage of funds for infrastructure development, it will issue a bond. This bond promises returns on investments made by the investors. There are many types of bonds issued by the government such as fixed-rate bonds, Sovereign gold bonds, floating-rate bonds, etc.
Accrued income:
Accrued income is the income that you earned but is not in your hand right now and is yet to be received. For example the profits you made in investment, but not received in your hand yet is an Accrued income.
Promissory notes:
To put it simply, a Promissory note is a kind of debt instrument in which one agrees to pay another some amount within a specified period. These notes are also considered a liquid asset.
Conclusion:
None of us knows when an emergency will strike us. Hence, having liquid assets is vital for any individual as well as the business as it will be helpful in times of crisis. Having liquid assets in hand is a good form of investment too.
How are liquid assets different from non-liquid assets?
Liquid assets are easy to sell in the market and converted into cash quickly without much loss. Whereas illiquid assets are lands and buildings that take time to get converted into cash.
Why should I have liquid assets?
Liquid assets will be helpful in case of emergencies and when sold there will be a minimum or no loss in value.
Does my Cash in a fixed account come under liquid assets?
It depends on the banks. Some banks allow closing the account early. But, some other banks may charge you a penalty for closing the account early. When banks don’t allow the account to close it will not come under liquid deposit.
What are liquid accounts?
Accounts such as saving accounts come under liquid accounts as you can use the money in your account whenever possible.
