{"id":10157,"date":"2020-06-18T05:28:51","date_gmt":"2020-06-18T05:28:51","guid":{"rendered":"\/blog\/?p=10157"},"modified":"2020-06-18T05:29:47","modified_gmt":"2020-06-18T05:29:47","slug":"liquidity-an-investing-underdog-that-has-come-into-the-limelight-today","status":"publish","type":"post","link":"https:\/\/tata-blog.osian.dev\/blog\/wealth-services\/liquidity-an-investing-underdog-that-has-come-into-the-limelight-today\/","title":{"rendered":"Liquidity: An Investing Underdog that has Come into the Limelight Today"},"content":{"rendered":"\n

Return,\nrisk and liquidity are the three important pillars of all investment plans. And\nthough return and risk are given much importance, liquidity seldom gets the\nprominence it deserves. Liquidity has always been an underdog in the world of\ninvesting, especially with retail investors in India. However, liquidity is\ngaining prominence now due to the unprecedented challenge that COVID-19 has\npresented to investment portfolios worldwide.<\/p>\n\n\n\n

Let\u2019s\nunderstand how liquidity is important; why it\u2019s hogging all the limelight\ntoday; and how you can infuse liquidity in your investment plans in these uncertain times.<\/p>\n\n\n\n

What is liquidity and why it\u2019s\nimportant?<\/strong><\/p>\n\n\n\n

Liquidity,\nin simple terms, is the ease and speed with which we can convert an asset into\ncash. Meaning, we can sell it easily whenever we need cash. Liquidity is an\nimportant factor because life is unpredictable and job losses, medical\nemergencies, business failure and economic slowdowns are a fact of life. Now we\ncan also add pandemics to that list with what we have experienced with\nCOVID-19.<\/p>\n\n\n\n

The\nfollowing example will help you understand why liquidity is important.<\/p>\n\n\n\n

In\n2012, Anil Sharma bought an apartment worth Rs. 80 lakhs in Gurugram, Haryana,\nand took up a home loan to finance his purchase. Real estate investment was\nmore lucrative than mutual\nfund investment at that time with lucrative returns in the range of\n16-18%. Anil also enjoyed maximum tax benefits with deductions based on\ninterests paid on the home loan.<\/p>\n\n\n\n

By\n2017, however, the outlook started to look grim for the real estate industry\ndue to demonetization and the ensuing slowdown. Anil had a manufacturing unit\nthat supplied parts to automobile manufacturers. With the automotive sector in\na severe slowdown by 2018, orders started to dry up and he had to shut down his\nfactory. Now he was in immediate need of funds to start a new business and pay\noff his creditors, however selling his apartment was getting difficult. <\/p>\n\n\n\n

After\nmuch delay, he had to sell his apartment at 70 lakhs in early 2019; taking a\nhit of 10 lakhs after staying invested in real estate for 7 years. A real\nestate investment is an example of an asset class with low liquidity. If Anil\nhad diversified his investments in equity, liquid funds, fixed deposits, cash and bonds, he\ncould have easily converted his investment into cash without losing time and\nmoney.<\/p>\n\n\n\n

Additional Read – <\/strong>Investing Advice by Experts for Investment in Post Pandemic World<\/a><\/p>\n\n\n\n

How to create liquid investment plans?<\/strong><\/p>\n\n\n\n

Liquidity\nis important but you shouldn\u2019t go overboard with liquidity. The right liquidity\ninvestment portfolio takes into account the predictability of your income. That\ndepends upon the type of your job and the nature of your business and several\nother factors.<\/p>\n\n\n\n

Experts\nrecommend you to formulate your liquidity strategy based on the following:<\/p>\n\n\n\n