Liquid assets are assets that can be converted into hard cash easily. Cash is one of the types of liquid assets and is used in most financial transactions by people. Mutual funds, stock market, and certificate of deposits can also be considered as liquid assets other than cash.
Liquid assets are one of the most common types of assets which are used by a large number of consumers as well as businesses. Some of the types of liquid assets are:
1. Mutual funds
Mutual funds collect money from various investors and invest it in different kinds of marketable securities such as bonds, stocks or any kind of short-term debts. Mutual funds are generally popular among investors for various reasons.
Some of these reasons are:
The shares can be sold by the investors whenever they wish to and they can get their money back within just a few days. This is why mutual funds are considered to be one of the most effective types of liquid assets.
2. Marketable security
Investments which can be bought, traded or sold on various public exchanges are called marketable securities. The buying and trading process of marketable securities is quite simple and less time-consuming, which is why it is considered as a liquid asset.
However, shares in various private corporations are not considered liquid because they are much more difficult to sell. This is why it takes more time for it to convert into cash than the public stocks.
3. Treasury bonds
Maturities in treasury bonds can range from a few weeks to 30 years. You can opt for short-term security rather than going for long-term security. If you do this, then it can be considered as a liquid asset as you will be getting your money back within a short time. But the interest rate is higher on long-term holdings than short-term securities. So if you have a long-term security and you decide to sell it before its maturity then you could lose a lot of value.
4. Savings or checking account
Money deposited in a bank account or any credit union has quick and easy access. Thus, a savings or checking account can also be considered as one of the types of liquid assets.
Other than these types, CD or certificate of deposit is also considered as a type of liquid asset because its duration can also range from a few months to several years. So, choosing a term that is suitable for you is the key because if you cash in before the expiration of your term then you can face a penalty.