“It’s liquidity that moves markets”
It’s not mandatory to invest in millions to start investing or to lock your money for years and decades to get returns. We are here to tell you about a type of investment with decent returns in a short period of time (maximum 90 days).
This article will give you complete knowledge about Cash Equivalents and their types. At the end of the article, you will be able to pick the best type of investment which will suit you the most.
Related; bonds and types of bonds.
What are Cash Equivalents?
Cash Equivalents are one of the most effective investments for a short period of time with decent returns. As the name suggests this investment is highly liquid as it is equivalent to cash.
Cash Equivalent is Short term(maximum 90 days), highly liquid, very low risk, with low return (Still higher than a savings account). It can be considered good for the person who doesn’t want to be engaged for a long period of time and have a low-risk appetite. You can buy them from Banks, Cooperations, or Government.
What are the Types of Cash Equivalents Investment?
Cash Equivalents will give you n number of investment options so you don’t have to worry about running out of options.
Later in the article, we will look at what are the different types of Cash Equivalents and help you to find out which one will fit you the best.
Following are the types of Cash Equivalents –
- Money Market Funds
- Marketable Securities
- Government Treasury Bills
- Commercial Papers
- Short-Term Government Bonds
What are Money Market Funds?
The first type of cash Equvialants we will cover is the Money Market Funds because, of the following features-
- Short term debt
- Highly liquid
- Good Credit Quality
This is a good investment for people who are not interested to do a lot of research before investing as it’s an open-ended mutual fund that invests in cash equivalents securities. But we still recommend you to do a of bit research before investing in the Money market funds, it is also known as the Money Market Mutual Fund.
What are Marketable Securities?
Marketable Securities are one of the most common ways of investing in Cash equivalent. Followings are features of Marketable Securities –
- Short time span
- Highly liquid.
- Can be debt or equity.
- Can be bought or can be sold on the public stock and bonds exchange.
For example – Common stock.
What are Government Treasury Bills?
Treasury bills are used when the government wants to raise money for a short period of time. Treasury bills have a short maturity period that starts from 91 days or 182 days or 364 days. It involves lesser risk followed by a low return. The investor also enjoys Tax benefits as a cherry on the cake. Generally, it doesn’t give interest on an investment but it is issued at discount and bought back on face value and you gain the difference between the both.
What are Commercial Papers?
Commercial paper is a financial instrument which is used by cooperates to raise fund as short term liability. The commercial paper gives you n number of choices in terms of maturity period which starts from 7 days to 1 year so it’s up to you for what time period you want to stay invested in the Commercial Paper Investment. In this investor is paid a fixed percentage of the loan as interest on investment. Usually, this investment is unsecured.
What are Short-Term Government Bonds?
As any government starts a project it requires funds, sometimes it’s from the government budget and sometimes it raises funds from the public in various ways. It can be bonds or selling public sector companies share or Government bonds. As the investment is backed by the government so there is very little risk of default and sadly low returns too. Short Term government bonds are considered as debt to the government. Generally, interest is paid on a periodic basis.
So in the end, cash equivalents are one of the most liquid investments, low return (higher than a savings account), and the best part that you don’t have to stay invested for a long time maximum of 90 days, some of them are backed by government so the amount of risk involved reduces and overall it’s a low-risk investment itself.
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