Hindi version के लिए कृपया यहाँ जाएँ: T1-15: लिक्विड और इलिक्विड इनवेस्टमेंटस
Whenever we invest money, it goes into investments that are either liquid or illiquid (non-liquid) investments. The biggest difference between the two is how easily, quickly, and at market price you can convert your investment into cash when needed.
Liquid Investments
A liquid investment is one that you can sell at market price without any difficulty. Mutual funds, ETFs, and stocks of major companies (such as TCS, Nestle, HUL, L&T) are all considered liquid investments.
You can convert your liquid investments into cash based on your exact requirement. For example, if you need ₹2 lakh in cash, you can immediately sell only ₹2 lakh worth of investments and receive the money directly in your bank account.
Similarly, Fixed Deposits (FDs) are also liquid investments. If you hold your money in multiple FDs, you can break only as many FDs as needed to get the cash you require, while your remaining FDs continue earning interest.
Illiquid Investments
An illiquid investment is one that takes considerable time, paperwork, and effort to convert into cash. Finding a buyer for an illiquid investment is not easy, and negotiating a price with them takes time.
Investment properties (real estate such as houses or land), gold, and shares of many small companies that lack sufficient buyers in the market are all considered illiquid investments. That is because selling them in a hurry usually means accepting a lower than market price.
Moreover, illiquid investments like property cannot be sold in small portions. For instance, if you need ₹2 lakh, you cannot sell just one room of a house to raise that cash.
Summary
Therefore, understanding the liquidity of an investment helps you know how easily and quickly you will be able to sell it at market price and convert it into the amount of cash you need.
Your Thoughts
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