Like your savings or checking account, any interest you own in a mutual fund is considered a liquid asset because it can be bought or sold with relative ease and quickly turned into cash.

Mutual Funds

The term "mutual fund" refers to a company that invests the pooled contributions of numerous investors into a variety of different financial securities, called its portfolio. Rather than purchasing shares of an individual stock, investors buy shares in a mutual fund that derives income from multiple sources.

There are many benefits to investing in a mutual fund. One of the chief benefits is that mutual funds are run by professionals whose entire careers are based on creating profit for their investors. Mutual funds are generally composed of a diverse range of investments to ensure that your capital is not lost if one sector or industry takes a dive.

Liquid Assets

An asset is considered liquid if it is easily converted into cash. Physical currency, therefore, is the most liquid asset. Liquidity doesn't have to be as simple as visiting the ATM, however. If there is an easily accessible marketplace where an asset can quickly be bought and sold, then it is considered liquid.

It is also important that the item not lose value if you must sell it quickly. Stocks, for example, fetch the current market price regardless of how quickly you sell them. It is for this reason that items such as real estate, cars and jewelry are considered illiquid. To sell your home for a fair price, you have to wait for a buyer who is willing to pay for it. For an asset to be considered liquid, there can be no such waiting game.

Like stocks, mutual fund shares can quickly be bought or sold. However, these transactions are executed by the fund itself or through a broker, rather than on an open market. You can sell your shares back to the fund at any time, and you generally must receive payment within seven days, making mutual fund investments highly liquid assets.

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    Limit orders and stop-loss orders do not apply to the trading of mutual fund shares. Read Answer >>
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  1. Mutual Fund Liquidity Ratio

    A mutual fund liquidity ratio is a ratio that compares the amount ...
  2. Liquid Asset

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  3. No Transaction Fee Mutual Fund

    A no transaction fee mutual fund is a mutual fund with no associated ...
  4. Pooled Funds

    Funds from many individual investors that are aggregated for ...
  5. Net Asset Value - NAV

    Net Asset Value is a mutual fund's assets less its liabilities, ...
  6. Mutual Fund Custodian

    A mutual fund custodian is a trust company, bank or similar financial ...
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