What is the difference between liquidity and equity

Having liquid funds significantly reduces the time-lapse from the moment you put the asset for sale to the time you find a buyer. Stocks are a good example of liquid assets which can be traded on the stock exchange on any working day. It is easier to find a buyer for a liquid asset than for an illiquid one. This does not mean that one must not have illiquid funds at all, but rather, one must not depend on illiquid funds for emergency situations.

The value of liquidity in the investment realm is grossly underrated. In the race to secure the future, many investors miss out on making provisions for the unforeseen events that can come uninvited anytime. Not having this security can force you to dig into your long-term investment plans, defeating their very purpose. To a huge extend, liquid funds manage to retain their value when they exchange hands, unlike many illiquid funds.

When you sell your real estate or property, you may or may not get the price depending on the market conditions. But when you break you access your savings account, there is no such loss of value of your funds. When you are investing in various asset classes, ensure you are equipped with ample liquid funds to avail in times of need. To know more about investment options with liquidity, visit ClearTax where we have an assortment of funds that you can choose from.

Start investing now or. Download link sent. What is liquidity and why does it matter? Updated on : Oct 05, - PM 08 min read. Start Investing Now. What is NPS? Then, you must determine what loan maximum your lending institution would extend in credit, known as the advance rate. Typically, advance rates will be between 50 and 80 percent. Then, take this number and deduct your liabilities against these assets. The result is called core equity excess reserves.

Then, the business owner would divide any losses into this number to ascertain the core equity burn rate in years. In this case, the lending institution will loan up to 70 percent of the asset value. If your business is struggling, this quick analysis will provide an objective look at the options and the element of time in preserving your wealth on the balance sheet.

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