Marketable Securities
Marketable securities are short-term investment instruments to receive a return on a limited time idle funds. The introductory prominent attribute of marketable securities affect the degree of their marketability or liquidity. To become liquid, a security must have two introductory features. These are:
i) Ready market
ii) Safety of principal
Ready marketability understates the amount of time requisite to convert a security into cash. The second determining element of liquidity is that there should be little in the value of marketable security overtime. Only those securities that can be easy to be changed over into cash without any step-down in the principal amount qualify for short-term investments. To a very great extent, they bring in a lower return as the fear of losing the principal amount is very low.
For picking out a proper marketable security, the financial manager should conceive the following elements:
i) Financial/default risk
ii) Interest rate risk
iii) Tax ability
iv) Liquidity
v) Yield
Treasury bills, units, bankers' acceptances etc. are characteristic forms of marketable securities.
a) Factoring
Factoring is a method of employing receivables for financing. Here , in this case, the accounts receivables assist as security for the financing attained by the bank or factor. Factoring is the at once sale of accounts receivable to a bank or finance company without appeal. The rewards of factoring in this circumstance are that it extends prompt cash and thus assists in liquidity and it permits for receipt of advances as requisite on a seasonal basis and it fortifies the balance sheet position of the company.
b) Inter Company Deposits
They are short term deposits with other companies and are a fairly appealing form of investment of short term funds in terms of rate of return. But these forms of deposits in general require time period of one month for conversion into cash and hence have to be aforethought in advance for meeting any short term indebtedness.
c) Money Market Mutual Funds / Liquid funds
In spite of the fact, that money market mutual funds fall under marketable securities, they can be viewed and addressed with separately, being extremely liquid. Money market mutual funds are professionally handled portfolios of marketable securities, which render instant liquidity. These funds have attained significant development due to their high liquidity and competitive yields.
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