## Management of Marketable Securities

### Purpose

Working capital needs fluctuate, so surplus cash is invested in short-term securities that provide both liquidity and returns. When cash is needed, the securities are liquidated.

### Key Principles for Selection

1. Safety — minimum risk is preferred, since liquidity (not high return) is the priority.

2. Maturity — investments should match expected cash needs; short-term securities carry less risk.

3. Marketability — securities must be easily and quickly convertible into cash without loss of value.

(Memory aid: S-M-M — Safety, Maturity, Marketability.)

### Types of Marketable Securities

Government Treasury Bills
Bank Deposits
Inter-Corporate Deposits
Units of Unit Trust of India (UTI)
Commercial Papers (CPs) of corporates
Deposits with sister concerns / associate companies

### Money Market Mutual Funds (MMMFs)

MMMFs have emerged as a popular short-term investment option for managing temporary excess cash.

⚠️ Common exam mistakes

Listing high-return equity as the primary choice — for surplus cash, SAFETY and liquidity outrank return.
Forgetting the maturity-matching principle: the maturity of the security should align with when the firm will need the cash.
Confusing marketability (ease of selling/converting to cash) with maturity (time to redemption) — they are distinct selection criteria.

Reference:

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