Temporary Investment/ Short term Investment:
Temporary investment is a kind of current asset account which contains the amount of investment that can and will be sold in the near future, having a life time of about one year or less.(www.accountingcoach.com)
Example: Money market, saving accounts, Certificates of Deposit, Treasury Bills, Government bonds, Municipal bonds.
Different types of Temporary Investment:
There are several types of temporary investment, as I mentioned before. Here’s some of them are discussed below:
Saving Accounts: Saving account is a stage where one can deposit his money in a bank and can withdraw the money when needed. Banker gives a interest on the deposit. This one kind of safest short term investment.
Certificates of Deposit: Under a “Certificate of Deposit” policy one should deposit his money for a period of time. He can’t withdraw the money before the maturity period, otherwise he would give a penalty to banker.
Short term bond: Short term bond are the riskiest of all types of short term investment because there is a chance of losing one’s principal on. As there is high risk, the investment hold the chance of highest return.
Natures/Features/Characteristics:
Here’s some important characteristic of temporary investment are given below
Investment tenure: The life time of the temporary investment is not more than one year. It is issued and sold within one year of time.
High Liquidity: As it is invest for less than one year, it can be converted into cash easily. Moreover, sometime it can be use as a substitute of cash.
Keeping the principle intact: There are less risk on this types of securities. Inflation and other circumstance can rarely effect on a short term investment. So there is less possibilities to losing one’s principal, except short term bonds.
Getting optimum returns: Short term investment provides a good amount of return than others types of investment, considering its profit and risk factor.