What Is a Marketable Security?

Marketable securities are financial instruments or assets that can be easily bought or sold on public stock and bond markets. They are highly liquid, which means you can convert them into cash quickly and with minimal loss in value. Companies often invest in these securities for the short term to earn a higher return on their idle cash.

Examples of Marketable Securities

1. Stocks: Shares in companies like Infosys or HDFC Bank that can be traded on stock exchanges.
2. Bonds: Debt instruments issued by governments or corporations to raise funds. They pay interest over a fixed period.
3. Treasury Bills (T-Bills): Short-term government securities that mature in a year or less.
4. Mutual Funds: Pooled investment funds that may hold a diverse mix of stocks, bonds, and other securities.

Why Do Companies Invest in Marketable Securities?

• Liquidity: They can be quickly converted into cash if a company needs to access funds promptly.
• Profitability: Investing idle cash into these securities can yield higher returns compared to leaving it in a regular bank account.
• Flexibility: Companies can choose from a variety of securities to match their risk tolerance and investment horizon.

Example

Let's consider Infosys, a major IT company in India. Infosys might have surplus cash that it doesn't immediately need for its operations or expansion. Instead of letting this cash sit idle, Infosys could invest in marketable securities like government bonds or shares of other corporations. This helps Infosys earn additional income through interest or dividends, and capital gains from these investments.

How to Purchase Marketable Securities?

1. Stocks and Bonds: Can be bought through stock exchanges using a brokerage account.
2. Mutual Funds: Purchased directly from the fund company or through a broker.
3. T-Bills: Bought at auction from the government.

Risks Involved

While marketable securities are generally considered safe, especially if they are government-issued or from highly-rated corporations, they are not without risk. The value of these securities can fluctuate based on market conditions, leading to potential losses.

Conclusion

Marketable securities offer a way for businesses and individuals to invest their idle cash in a manner that provides liquidity, potential income, and the flexibility to choose from a variety of investment options. Whether it's investing in the dynamic world of stocks or the more steady realm of bonds, these financial instruments play a crucial role in financial planning and asset management.