MATURITY MISMATCH

Maturity mismatching of funds refers to a situation in which the maturity of the assets and liabilities of an individual or a company are not aligned, this can be a problem in?an entity's finance because it can leave the?entity without sufficient liquidity to meet their short-term financial needs, while also exposing them to potential losses if they need to sell their long-term investments at a time when they have declined in value.

For example, let's say someone has a long-term investment in stocks or real estate that would materialize in next 2-5?years. However, they also have short-term financial obligations such as rent, utility bills, or car payments that need to be paid on a monthly basis. If they do not have sufficient cash or liquid assets to cover these expenses, they may be forced to sell their long-term investments prematurely, potentially incurring losses if the market is down at that time.

To avoid maturity mismatching of funds, it's important to have a cash flow budget and maintain an appropriate mix of short-term and long-term investments based on your financial goals and needs. This can involve setting aside a portion of your income in a savings account or other liquid assets to cover short-term expenses, while also investing in long-term assets such as stocks, real estate, or retirement accounts for future financial goals. It's also important to regularly review your portfolio and adjust your investment mix as your financial situation and goals change over time