Difference Between Liquid Capital vs. Investment Capital

Capital and money can mean the same thing.

Capital and money can mean the same thing.

Neither of the terms "liquid capital" or "investment capital" have specific stand-alone meanings, and can be used in context of several applications. To understand the possibilities to use them correctly, it's best to learn the meanings of the individual words "capital," "liquid" and "investment" in their financial contexts. Then make combinations according to your needs.

Individual Definitions

In its most basic usage, "capital" means money. In the financial world, capital means money available to be invested or already invested in a bank, company or business. "Liquid" in the financial world simply means that the money in any type of investment can easily be converted into cash. Cash in your hand would also be considered liquid. "Investment" simply means money placed in an account or business with the intent of making it grow into more money.

Liquid Capital

Liquid capital means any money you may have that is easy to access. Money in savings or checking accounts, mutual funds or the stock market are considered liquid capital because you can easily access the money with a trip to the institution, a phone call or an Internet transaction. An investment in real estate would not be liquid capital because you need to go through a complex sales process to change it into cash. Money in an IRA is usually not considered liquid capital because you may have to pay a penalty to access it.

Investment Capital

Investment capital simply means money available to invest. For example, if a company offered a franchise opportunity, it might use the phrase "investment capital required" when stipulating the amount of money needed to start the business. Liquid capital could also be investment capital if it's available to be invested. But this must be determined by the person holding the capital. For example, if you have liquid capital in a savings account for a trip to Europe, you would not consider it investment capital, even though you could possibly use it for that purpose.

Other Combinations

The words can also be mixed in other ways for other meanings. For example, liquid capital in a bank account or mutual fund could also be considered a liquid investment if it is drawing interest to increase in value. Any money you have invested in anything could be considered a capital investment. For example, if you decided to use your money saved for your trip to Europe to buy a small business, after doing so it would be considered a capital investment.

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