What Are Idle Funds?
Idle funds are money in an account that does not earn interest. Common examples include uninvested cash and checking accounts. Idle funds are typically used for everyday expenses. Many financial experts advise against keeping too much cash idle in order to get the maximum rate of return on assets. It is also important not to invest too much idle cash, as it can be costly to tie up excessive capital only to need to sell those investments.
There are several ways to start earning income on idle funds that can be invested over the long term. Modest investments include a savings account, money market, or savings bond. Investments in individual stocks or groups of stocks such as index funds are a more aggressive choice.
How to invest idle funds depends upon the status of the company and the way it does business. In general, any organization that tends to have large amounts of extra cash on a regular basis would usually benefit from investing the surplus. Companies that are less established or have other factors that affect their security may not be able to invest as much, but will often benefit from some kind of investing in order to boost their chances of longevity.
Sometimes it can be difficult to avoid keeping idle funds. For example, some organizations may have cyclical needs which necessitate different amounts of liquidity, depending on the period. This can result in certain periods where there are excessive idle funds. An organization with these needs can find it difficult to get a maximum rate of return because it can only tie up a certain amount in long-term investments.
Short-term investments such as money market funds can be a useful way for companies with cyclical earning and spending patterns to earn some return, while still keeping cash readily available. If the company is financially comfortable, it may also choose to make a few aggressive investments as well. In either case, it is wise for the organization to conduct a thorough financial assessment before investing in order to avoid falling short with daily cash requirements.
Before investing idle funds, in addition to deciding what amount is necessary for daily operations, it is wise to keep a financial cushion for unexpected expenses. This can amount can be found by determining both daily and periodic costs. Then, while it is not possible to anticipate all additional expenses, researching the history of the organization can reveal the probably nature and extent of those extra costs.
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