GeneralFinancial Glossary
Liquidity
Definition
The ease with which an asset can be converted into cash without significantly affecting its price. Cash is the most liquid asset. Listed large-cap stocks are highly liquid. Real estate and private equity are illiquid. In personal finance, liquidity refers to how quickly you can access your money.
Why It Matters
Liquidity matters when you need money urgently. PPF has a 15-year lock-in (partial withdrawal after year 7), ELSS has 3-year lock-in, and real estate can take months to sell. Your emergency fund must be in liquid assets (savings account, liquid fund). Investments for near-term goals (1-2 years) should also be in highly liquid instruments.