This lesson covers the principles and strategies for investing surplus cash, a critical function for any treasury department. The CTP curriculum includes “Managing Short-Term Investments” as a key component .

4.1 Investment Policy and Objectives

Treasury invests surplus cash to generate a return while safeguarding principal and ensuring liquidity. The typical investment policy prioritises safety and liquidity over yield. The focus is on short-term, high-quality instruments as detailed in the CTP curriculum .

4.2 Types of Investments

A treasury portfolio is primarily invested in low-risk, liquid instruments:

  • Money Market Instruments: As discussed, these form the core of the short-term investment portfolio.

  • Short-Term Bond Funds: Professionally managed portfolios of short-term debt securities.

  • Fixed Deposits: Time deposits with banks offering a fixed rate of return .

4.3 Risk and Return in the Investment Portfolio

The relationship between risk and return is a fundamental financial principle. Higher potential returns are only available by accepting higher risk. To manage risk, the portfolio should be diversified across issuers, maturities, and instrument types .

PreviousNext