Different Asset Classes and their advantages and disadvantages (Part-III)

Part-III: Cash and cash equivalent.

Most people think that only investments generating cash are assets, however, even cash itself is an asset class as it gives you purchasing power when any opportunity arrives and cash in saving bank account can also generate return. Cash saves you from liquidity crunch. In business world, excellent opportunities does not last longer. In such scenario, those who are having cash in hand have more chance to gain from such short-term opportunity. There is only one disadvantage of cash that it’s return cannot beat inflation. If you keep cash in your bank account for long time, due to inflation, its value will decrease.

To overcome this problem, you can invest in liquid funds where you can withdraw your money within a day. Liquid funds normally gives better return than saving bank. Alternatively, you can park your money in “sweep in FD”. Kotak is one such bank providing this facility. All you have to do is link your existing Fixed Deposit to your Savings or Current Account in Kotak bank.  In case you are falling short of funds in your account the deficit will be withdrawn from your Fixed Deposit. The Sweep-In facility helps you enjoy liquidity in your Savings account while earning high returns with the applicable interest rates of a Fixed Deposit.

With the Sweep-In facility you can link your existing Fixed Deposit to the Savings/Current Account. Whenever there is a shortfall of funds in the Account to clear a cheque, we will utilize units of the Fixed Deposit to clear the cheque. On this utilized amount, you will earn a rate of interest for the period that the Fixed Deposit remained with the Bank at the applicable rate of interest at the time of booking the original Fixed Deposit. Your balance amount in Fixed Deposits will continue to earn the original rate of interest.

For more details, please contact bank representative. A small disclaimer: this article is not sponsor by any bank; some information about sweep in facility is from Kotak bank website for education purpose.  

It is very important to keep some cash with you and treat it as a liquid asset. Never invest 100% of you portfolio in illiquid asset. Always keep some cash with you based on market situation and your risk appetite. Consult an experienced and qualified investment advisor for making a well-balanced and diversified investment portfolio.

I am an investor and two year back I developed interest in finance and investment. I manage my own portfolio and still learning about new investment options. However, I am not a certified investment advisor and this blog is not an investment advice, it is only for education in good faith.

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