Ever wondered what big corporations or even governments do with extra cash lying around? They don't just let it sit idle. Instead, they often invest in something known as marketable securities — highly liquid financial instruments that can be quickly converted into cash, often within a year.
Whether it's to fund short-term expansion plans, manage working capital efficiently, or just park idle cash for some returns, these securities help organisations stay financially agile. In this article, we’ll explore everything you need to know about marketable securities — from what they are and how they work, to the different types and why they’re such a strategic asset for companies. Just like companies use marketable securities for idle capital, individual investors can use mutual fund investments to keep surplus funds actively earning while retaining easy access. Start Investing or SIP with Just Rs. 100!
What are marketable securities?
Marketable securities are like the liquid cash of the investing world — easy to buy, sell, and convert into money when needed. They're short-term financial assets issued by companies or governments, and they typically mature within a year. Let’s say a company needs quick funds to cover upcoming expenses or expansion plans. It can issue marketable securities — either as debt instruments like treasury bills or equity instruments like common stock — to raise money fast. On the other hand, investors or companies with idle cash can purchase these securities to earn returns in the short term while still keeping their funds accessible.
Governments also issue marketable securities, such as T-bills, to finance public projects. Since these instruments are widely traded and have a known value, they’re seen as low-risk, quick-turnaround investments. If you're looking to replicate this liquidity and capital efficiency in your personal finances, short-duration mutual funds offer similar access and control. Compare Mutual Fund Options Now!
Types of marketable securities
There are two main types of marketable securities — equity and debt. Here's how they differ:
1. Marketable equity securities
These include shares like common stock or preferred stock of publicly listed companies. If a business holds these stocks for under a year, they're classified as current assets. But if the same stocks are held for longer, they’re seen as long-term investments.
Now, if a company buys shares not just to earn returns but to gain control or influence over another company, then even if listed, it’s treated as a strategic investment, not a regular marketable security.
2. Marketable debt securities
These are short-term bonds or similar debt instruments issued by public companies and held by others. They typically appear as current assets on the balance sheet, since they’re expected to be sold within a year.
If these securities are held longer than a year, they get reclassified as long-term investments. Until sold, they’re recorded at their purchase cost — and any profit or loss is only recognised once the sale happens.
Purpose of investing in marketable securities
Companies invest in marketable securities for more than just short-term profit — there’s strategic thinking behind it. These investments help businesses manage idle cash, earn returns, and stay flexible. Here are the three main reasons why companies go for them:
1. Held until maturity
Some companies buy marketable securities with the intent to hold them until they mature. If the maturity period is under a year, they’re counted as short-term investments. If longer, they fall under long-term, non-current assets.
In both cases, they’re shown on the balance sheet at their fair value. Unlike stocks, the daily ups and downs in value are usually ignored unless the company actually sells the security and books a gain or loss.
2. For trading
Others invest with a more active mindset — to earn quick returns. These securities are traded within a year and listed on the balance sheet at their fair market value.
If the price goes up or down during the holding period, the change is recorded. Even temporary gains or losses make their way into the income statement, giving a real-time view of how the investments are performing.
3. For sale
Sometimes, companies buy marketable securities without a clear goal to hold or trade actively — they simply intend to sell when the timing feels right. These are still recorded at fair value, but gains or losses aren’t booked until the security is sold.
However, if a drop in value looks permanent, the company must reflect that loss in its balance sheet and income statement — even before selling it.
Just like companies assign clear goals to each category of marketable securities, you can set defined objectives for your mutual fund investments—whether for growth, liquidity, or steady returns. Open Your Mutual Fund Account Today!
Characteristics of marketable securities
So, what makes a security “marketable”? A few defining features set them apart:
- Short-term maturity: These instruments typically mature in under a year, making them perfect for near-term liquidity.
- Ease of trading: They’re listed on public stock or bond exchanges, which means buying and selling them is smooth and transparent.
- Strong secondary market: There’s always a buyer or seller, so liquidity is rarely an issue.
- Accurate valuation: Since prices are publicly available, companies and investors know exactly what the investment is worth.
- Not cash equivalents: While very liquid, they’re not the same as cash or money market instruments maturing in under three months.
Just like marketable securities are chosen for liquidity and short duration, mutual funds have options like overnight or liquid funds tailored for ultra-short-term needs. Compare Mutual Fund Options Now!
Why invest in marketable securities?
Let’s say a company has excess cash and doesn’t need it right away. If that cash just sits there, inflation slowly eats into its value. Marketable securities offer a smart alternative — they help preserve capital and earn modest returns without locking up the money for too long.
For example, consider XYZ Pvt. Ltd., a company with Rs. 2 crore in surplus cash. If left idle during a year of 4% inflation, the real value of the cash would shrink to around Rs. 1.92 crore. But if the company invests it in 364-day Treasury Bills offering a 4.5% return, it could potentially grow to Rs. 2.01 crore — even after adjusting for inflation.
And if the company needs the cash sooner? No problem. These securities can be sold in the secondary market, offering liquidity with minimal risk.
Examples of marketable securities
Not all marketable securities are created equal. They come in different forms — some issued by governments, others by corporations. Here's a breakdown of some of the most common types you might come across:
Government paper
These are also known as Treasury Bills or government securities. They’re considered one of the safest short-term investments because they’re backed by the government. Highly liquid and low on risk, these instruments are easy to buy and sell in the secondary market.
Commercial paper, corporate bonds, and debentures
Commercial papers are typically issued by companies as a short-term way to raise capital. They mature within a year, making them fit the definition of a marketable security. On the other hand, corporate bonds and debentures are usually long-term instruments, but if a company holds short-term versions, those count as marketable debt.
Certificates of deposit (CDs)
Banks issue CDs with fixed terms and interest rates. When these have short-term maturity (generally under a year), they can also be traded in secondary markets. That makes them eligible to be considered marketable securities.
Mutual funds
Certain mutual fund schemes, especially open-ended ones, allow for easy redemption. Since their units can be sold quickly and are priced daily, they qualify as marketable securities — as long as they don’t have lock-in periods or other restrictions.
If you’re looking for instruments with similar liquidity and tradability, mutual fund investments especially liquid and debt fund categories—offer great alternatives to traditional marketable securities. Explore Top Performing Mutual Funds!
Key takeaways
If you're looking to manage surplus cash without locking it away for years, marketable securities are worth a closer look. Here's a quick recap:
- They’re short-term, highly liquid instruments that mature in under a year.
- You can find them in both debt (like T-bills or commercial paper) and equity (like publicly traded stock) formats.
- They’re traded on public exchanges, making it easy to convert them into cash.
- Popular examples include government securities, commercial paper, and certain mutual fund units.
Conclusion
Marketable securities give businesses a practical way to put idle cash to use — offering a combination of liquidity, low risk, and modest returns. Whether it’s a bank investing in Treasury Bills or a company parking surplus funds in commercial paper, these instruments help maintain financial flexibility while fighting off inflation.
However, they’re not designed for high returns or long-term wealth building. They shine in their ability to bridge the gap between cash on hand and more strategic investments, ensuring that money doesn’t sit idle when it could be doing just a little bit more.
For example, consider XYZ Pvt. Ltd., a company with Rs. 2 crore in surplus cash. If left idle during a year of 4% inflation, the real value of the cash would shrink to around Rs. 1.92 crore. But if the company invests it in 364-day Treasury Bills offering a 4.5% return, it could potentially grow to Rs. 2.01 crore even after adjusting for inflation.
And if the company needs the cash sooner? No problem. These securities can be sold in the secondary market, offering liquidity with minimal risk. If you want to replicate the liquidity benefits of marketable securities while also exploring better return potential, mutual fund options like liquid or ultra-short duration funds can offer that balance. Compare Mutual Fund Options Now!
