Some investors make security investments for a short period. These types of short term investments are called as cash equivalents.
Different from stocks and bonds, cash equivalents are meant for short term investment and so comes with high liquidity and credit worthiness.
While being of low risk, these securities do not come with expectations of high returns.
Best examples for such securities are treasury bills, certificates of deposits and corporate commercial paper and short term bonds issued by the government among others.
Cash equivalent securities are issued by firms and governments for various reasons.
Government issues short term bonds belonging to this category to fund various projects.
Private firms on the other hand make issuance for various reasons. They might use them to cover their operating expenses, immediate purchases.
Such funds are also used to make acquisitions and also simply to create enough cash resource at a time, when the firm is going through a lean patch.
Overall, these funds can be used by investors as a safe investment for a short period providing moderate returns.
First Published: IST