Short Term Ratings to Help You in Investing

As investment options get diverse in terms of nature and geography, making an informed decision not only secures your investment but also maximizes your wealth. Expert review of instruments, entities, countries etc facilitated by short term ratings by credit rating agencies enable investors analyze the various risks and returns associated with investing.

Credit rating is a financial service offered by various credit rating agencies across the world. It is an assessment of the credit worthiness of the borrowing entity based on its history of borrowing and repayment. Usually rating methodology of most rating agencies also considers the availability of assets of the borrowing entity, its operational efficiency, cash flow trends, liquidity, management efficiency, financial structure, competitive environment etc while arriving at their ratings.

Credit ratings do not guarantee either payment or default of obligations by the borrowing entity but merely indicate levels of credit risk associated with that particular instrument / entity. Ratings also enable investors to monitor their portfolios well by adjusting their investments with changes in ratings, if any. Besides, ratings also help entities improve its payment discipline, encourage greater financial information disclosure, reduce its borrowing costs and contribute to its overall growth.

Short term debt instruments are issued by private organizations, government agencies which usually have maturity of not more than a year. These highly liquid instruments viz., treasury bills, bankers’ acceptances, negotiable certificate of deposits, commercial paper etc render excellent investment options for short term. Though, short term instruments are comparatively less risky than long term debt, it is prudent to properly analyze the instruments and borrowing entities to safeguard your investment.

Top credit ratings across the world viz., Moody’s Investors Service, Standard & Poor’s, Fitch Ratings etc provide short term ratings on various debt instruments with maturity not exceeding a year. However, each of the rating agencies has its own assessment mechanism and unique rating symbol indicating its opinion of the instrument / entity. To have a precise understanding of the risks associated with the target instruments, having a thorough understanding of the rating symbols and its indication is very crucial.

Though short term ratings provide expert opinion on debt instruments and entities, such ratings are not devoid of errors or bias. Hence it is crucial for investors to also use their prudence in analyzing the entity, economy etc while investing.

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