Cash equivalents are investments that have short maturity periods (less than 90 days). These investments are considered as liquid assets as they can be easily converted into cash.

Different types of liquid assets that fall under the cash-equivalent category:

Mutual funds
A mutual fund is a form of financial vehicle that is created by a pool of money collected from many investors. The objective is to invest in money market instruments, bonds, stocks, and other assets for long-term capital growth. These funds are managed by professional money managers who allocate the assets to earn capital gains or returns to the fundholder. A portfolio of a mutual fund is structured and maintained to match the reasons mentioned in the offer document. Mutual funds certainly are one of the most lucrative investment avenues when it comes to the different types of liquid assets.

Mutual funds are further classified into:

• Money market funds
  Money market funds are a short-term debt instrument. These funds invest particularly in highly liquid investments, which include cash, high credit rating debt-based securities, and cash-equivalent securities. These funds have a maturity tenure of less than 13 months. They offer good liquidity and have a low risk, which makes them a safe investment option.
• Exchange-traded funds
  ETFs have become quite popular under mutual funds. These funds offer you the convenience of purchasing a varied basket of securities in a single transaction. Along with diversification, ETFs offer advantages of stocks. This is because these funds are traded on stock exchanges. Also, contrary to traditional funds, ETFs can be sold or bought at any time. This feature makes ETFs a valuable liquid asset.

Stocks

Stocks are another important type of liquid asset. They provide you with the facility of instant liquidity. If you need funds urgently, you can sell your stocks at the current value and get the much-needed finance.

Treasury bonds
A treasury bond is a government debt security that earns interest until it matures. Post maturity, its owner is paid an amount equal to the principal. There is an active market that purchases and sells treasury bonds. This makes it easy for you to trade your bonds in exchange for cash at any given time.

Bank accounts

Bank accounts are considered as cash-equivalent liquid assets as they offer high liquidity. You have the flexibility of withdrawing funds at any time from your bank account.

Marketable securities
Marketable securities are a type of cash-equivalent liquid asset as these can be sold easily through a stock exchange or a bond exchange without any restrictions. These securities are of two types: marketable equity securities and marketable debt securities.