Illiquid assets refers to the condition of an asset, bond, stock, or any other financial security that cannot be easily and quickly sold or traded for cash within a short period of time without a
significant loss in value. Illiquid assets can be difficult to sell even more quickly when there are low market activity and no sign of an increase in interest. Illiquid investments are usually not purchased as soon as they are listed because of their difficulty of being liquidated.
Illiquid assets are also considered by investors as risky since the market activity involved in them is also not visible and is generally done through the use of credit or money. Since the assets
that are categorized as illiquid are normally not purchased on the same day that they are listed, this is an additional risk for the investors. Some companies have used their assets for
speculative purposes and have used these as long-term investments but because of the difficulty in liquidating the assets, many investors have given up the idea of making such investments.
There are various types of illiquid investments including stocks, mutual funds, commodities and other financial instruments, and securities and currencies. The different types of assets are
categorized as either liquid or non-liquid depending on whether there is a potential for quick sale and exchange of the asset at the current market price. Some companies also list their assets as
long-term investments or even as an asset class in order to attract the investing public.
For example, mutual funds are assets like stocks that have been pooled together for the purpose of investing in these investments. They are then held by a fund manager or group of managers.
These investments are managed in the name of the company where the fund manager is an official of the firm. There are usually no restrictions regarding these investments as far as the
transactions are concerned and the transactions are conducted under the supervision of the regulatory authorities.
Another asset class that is categorized as illiquid is the commodity or currency portfolio. In the same manner as the mutual fund is considered as an asset class, the commodity portfolio is also
categorized in the same way. While some commodities like gold and stocks are considered to be liquid assets, there are others that are not so.
Mutual funds, also known as a broad index fund or a single index fund, is an investment portfolio of securities, which can be chosen and invested in by the same or multiple people. In case of
mutual funds, the manager or fund manager manages the investment by selecting the stocks, bonds, and other financial instruments that can be invested in and managing the investments of
the portfolio of the fund. Most mutual funds are managed by professionals and investors. This option of investing is also beneficial to investors because of its convenience of dealing with these investments.
A mutual fund is often referred to as a basket fund. It is a portfolio of securities, which makes the investment in it easy and convenient to deal with. Some mutual funds include both stocks and
other financial instruments and provide diversification in the portfolio, allowing investors to make an quick decision about which to invest in. Some other options of mutual funds are stock index
funds, equity index funds, and money market funds. They are also commonly called bond index funds.
Other types of assets are not so liquid. A bond is an agreement or contract between two parties to create a bond. They are generally bought or leased on a temporary basis and held by the
issuer for a specific length of time.