Liquidity

Liquidity refers to the ease of converting assets into cash. FD laddering improves liquidity by staggering fixed deposit maturity dates.
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3 mins
11-November-2025

Liquidity refers to how quickly an asset can be converted into cash without significantly changing its market value. In simple terms, the more liquid an asset is, the faster and easier it is to sell it when you need cash.

It plays a vital role in helping investors balance flexibility with returns. Highly liquid assets, like cash or savings accounts, are easily accessible. On the other hand, less liquid assets, such as real estate or collectibles, may take longer to sell.

Want an investment that offers both safety and flexibility? 
Choose a Bajaj Finance Fixed Deposit — get high interest rates with multiple payout options. Open FD Account.

What is Liquidity?

Liquidity refers to the ability to convert an asset into cash quickly without affecting its market value. In simpler terms, liquidity is how easily an asset can be sold or bought in the market. It helps investors and traders to convert assets into cash quickly, without any major impact on the market value of the asset.

Liquidity can arise from either the inherent nature of the asset or the market conditions. For example, fixed deposits are accessible investments that can be withdrawn whenever you need them. You can withdraw money in an emergency even before the maturity tenure, by paying a premature withdrawal charge.

Liquidity example

Liquidity refers to the ease with which an asset can be converted into cash without significantly affecting its value. Here's a breakdown of different assets and their typical liquidity levels:

1. High liquidity

  • Cash: The most liquid asset, as it's already usable for spending.
  • Savings accounts: Easily accessible, though may have limits on withdrawals.

2. Moderate liquidity

  • Stocks: Can be sold quickly on stock exchanges, but prices fluctuate based on market demand.
  • Bonds: Traded on markets, may take a bit longer to sell, especially less common bonds.

3. Low liquidity

  • Real estate: Takes time to find a buyer and complete a sale.
  • Collectibles (Art, Antiques): Finding the right buyer willing to pay a fair price can be a lengthy process.
  • Private business ownership: Selling a stake in a private business is complex and time-consuming.

Keep part of your portfolio liquid — invest in short-term FDs that let you withdraw funds when needed. Check FD Rates.

Fixed deposit variants

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Fixed Deposit - 60 Months

INTEREST RATES UP TO
7.30% p.a.
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Fixed Deposit - Senior Citizen

INTEREST RATES UP TO
7.30% p.a.
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Fixed Deposit - Age below 60

INTEREST RATES UP TO
6.95% p.a.
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Fixed Deposit - Minor

INTEREST RATES UP TO
6.95% p.a.
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Fixed Deposit - HUF

INTEREST RATES UP TO
6.95% p.a.
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Fixed Deposit - Sole Proprietor

INTEREST RATES UP TO
6.95% p.a.
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Importance of Liquidity

  • Liquidity allows investors to manage their cash flows and make timely investment decisions.
  • Without liquidity, investors would be unable to purchase or sell assets quickly, leading to delayed investment decisions and lower returns.
  • Additionally, companies that have access to liquid assets can better manage unexpected financial obligations like paying off debts or meeting payroll requirements.
  • Liquidity accelerates the entire process of a transaction by maintaining a balance between the risk and returns.

Stay prepared for emergencies while earning solid returns — invest in a Bajaj Finance FD with flexible tenure options. Check Eligibility.

Types of Liquid Assets

1. Currency

Currency is the most liquid asset in the world. It can be easily converted into any other currency or used to buy other assets like stocks or bonds.

2. Cash

Cash is the most liquid of all assets. It can be used to make purchases, investments, or pay off debts instantly.

3. Savings Accounts

Savings accounts are considered liquid as they are easily accessible and can be withdrawn without significant penalties.

4. Fixed Deposits

Fixed deposits with their flexible tenure (12 to 60 months with Bajaj Finance) and payout options (monthly, quarterly, half-yearly, and yearly), can be beneficial for both short-term and long-term goals.

5. Government Bonds

Government bonds are highly liquid as they are issued by the government and are considered a safe investment option.

6. Marketable Securities

Marketable securities like stocks and bonds can be sold easily on the market, making them liquid assets.

With a Bajaj Finance FD, enjoy complete flexibility — pick your tenure, interest payout, and plan liquidity your way. Explore FD Options.

Also read: What is Liquidity Asset

Methods of measuring liquidity

Market Liquidity: It refers to market conditions that allow fast purchases or sales of assets. Particularly noticeable is this liquidity in the real estate or finance markets. In economics, the conversion of assets into cash takes place across marketplaces and is known as liquidity.

Accounting liquidity: It is the simplicity with which a business or person can meet its financial commitments utilising liquid assets. It entails comparing the company's or an individual's liquid assets to their current liabilities over a fiscal year. The current ratio and cash ratio are two ways to gauge accounting liquidity.

Working capital is another name for the current ratio, which accounts for current assets that could be converted into cash throughout a fiscal year.
Current Ratio = Current Assets ÷ Current Liabilities

The cash ratio, on the other hand, gauges the amount of cash flow needed to cover present obligations. It frequently serves as a measure of short-term liquidity.

Cash Ratio = Cash and Cash Equivalents ÷ Current Liabilities

Maintain your liquidity balance smartly — invest a portion in high-yield FDs to ensure your funds are always working for you. Start Investing.

Role of liquidity in investments

The importance of liquidity lies in its impact on financial flexibility and risk management. It allows investors to react quickly to market opportunities or emergencies, making it a key consideration when building a portfolio. Illiquid investments, on the other hand, can lock up capital and limit an investor’s ability to respond to changing financial needs.

Key points on the role of liquidity:

  1. Quick access to cash: Liquid assets can be easily converted to cash, ensuring financial flexibility in emergencies.
  2. Market stability: High liquidity tends to stabilize prices, minimizing the risk of drastic price fluctuations.
  3. Investment strategy: Liquidity influences portfolio composition, balancing between short-term and long-term goals.
  4. Risk management: A liquid portfolio helps mitigate risks by allowing timely exit from underperforming assets.

Also read: What is Liquidity Trap

Fixed Deposit

  1. Trusted by over 5 lakh customers
  2. Fixed Deposits worth more than Rs. 50,000 crore booked
  3. Rated CRISIL AAA/STABLE and [ICRA]AAA(STABLE)
  4. Up to 0.35% p.a. extra interest offered for senior citizens
  5. Flexible interest payout options available - Monthly, Quarterly, Half-yearly, Annually or at Maturity

By proceeding, you agree to our Terms and Conditions

FD Laddering: Enhancing Liquidity in Fixed Deposits

Fixed Deposits (FDs) are known for their steady returns and safety. But investors often worry about locking funds for long durations. That’s where FD laddering helps.

Laddering means dividing your total investment into multiple FDs with different maturity periods. This ensures that a portion of your money becomes available at regular intervals, improving liquidity without compromising returns.

Example:

Suppose you invest Rs. 5 lakh in five FDs — each with tenures ranging from 1 to 5 years. When the 1-year FD matures, reinvest the proceeds into a new 5-year FD. This way, you will have an FD maturing every year while continuing to earn high long-term interest.

This strategy helps you:

  • Access funds regularly without breaking long-term FDs
  • Reinvest at better interest rates when they rise
  • Keep your portfolio flexible and liquid

Try FD laddering today — enjoy liquidity, flexibility, and assured returns with Bajaj Finance FDs. Check FD rates.

Conclusion

Liquidity is the lifeblood of any financial plan. It allows you to manage emergencies, plan goals, and invest confidently without disrupting your financial flow. Whether it’s managing short-term needs or building long-term wealth, balancing liquidity is essential.

By incorporating smart tools like FD laddering, you can enjoy regular access to funds while earning stable returns — making your money work efficiently for you.

Build a liquid and secure investment portfolio with Bajaj Finance Fixed Deposits — high returns, flexible tenure, and unmatched safety. Open FD Account.

Calculate your expected investment returns with the help of our investment calculators

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Frequently asked questions

How is liquidity calculated?

There are several ratios used to calculate liquidity, like the current ratio (current assets / current liabilities) or quick ratio (more stringent, excludes inventory).

Which is high liquidity?

Assets like cash, savings accounts, and money market funds have high liquidity, as they are easily converted into cash quickly.

Which indicator shows liquidity?

Liquidity ratios are the primary indicators. The current ratio, quick ratio, and cash ratio demonstrate a company's ability to cover short-term debts.

What is the rule of liquidity?

There's no single "rule of liquidity," but it's wise to maintain a balance of liquid assets for emergencies and less liquid assets for potential growth.

What do you mean by liquidity?

Liquidity refers to how quickly and easily an asset can be converted into cash without significantly affecting its market value. In finance, higher liquidity means assets can be sold or traded with minimal impact on price.

What is liquidity in real life?

In real life, liquidity is the ease with which you can access or use money. For example, cash in hand or money in a bank account is highly liquid, while assets like property or antiques are less liquid as they take longer to sell.

Are Fixed Deposits safe for long-term investments?

Absolutely. Bajaj Finance FDs carry AAA/STABLE ratings from CRISIL and ICRA, ensuring your money is protected while earning competitive returns. Book FD.

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Disclaimer

As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.