Based on our blog ‘7 Rules Of A Smart Fund Manager (That Everyone Should Follow)’, we’re running a week long series spending a little more time with each rule, so you can easily digest each and every tidbit! #SharingIsCaring
A liquid asset is one that can be turned into cash at short notice. It can take many forms, the most common (and obvious) of which is cash. If you’re averse to keeping too much cash at home, you can open a separate bank account to maintain an emergency fund. Even gold is a relatively liquid asset.
Since they handle money from a large number of sources, any of which can submit a redemption request on short notice, fund managers must earmark a pool of funds from where such requests can be fulfilled. In other words, they know to maintain a certain level of liquidity to address short-term needs.
In exactly the same way, *you also need to maintain a certain level of liquidity *to take care of short-term, unplanned or emergency expenses. It could be because of a medical emergency, an unforeseen car repair, or an impromptu poker night. You never know when the need may arise, so always be prepared.