Investing in mutual funds can be complicated and cutting through complex details is scary. This makes investing look like an expert’s work.
How would you feel if someone simplified Mutual fund aspects through cricket? Here is a description of Mutual Fund’s by attributing cricket to it.
Mutual Funds & Cricket are the same in spirit
1. Only a well-diversified team leads to victory – a team with 11 batsmen or bowlers will not win. All sorts of players are required like batsmen, bowlers, all-rounders, and a keeper.
Similarly, a well-diversified portfolio is required to win. Mutual Funds are these pre-constructed diversified portfolios or teams.
2. Horses for courses – it is no shock that specialized T20 players cannot perform in Test matches.
Similarly, if you wish to invest for a long period of saying more than 5 years, then investing in debt mutual funds which are good for short-term investments, will not give you the benefits you want.
3. Consistency and Patience are the keys – To win means scoring runs in all situations. Giving away wickets by careless batting will make the team lose a match.
Similarly, a bad performance by mutual funds for a few months might encourage you to exit. But you should bat along and rotate the strike for singles. Good years will take care of these bad months.
Mutual Fund Portfolio = Cricket Team
In an overview, a mutual fund can be thought of like a cricket team. A cricket team consists of players with different abilities. In mutual funds, each mutual fund has various stocks and bonds which make the team.
In Cricket, weather and pitch conditions influence team composition. Similarly, market conditions decide the composition of portfolios.
When pitch conditions are good you take hitters but balance it out with all-rounders. Similarly, under good market conditions, you may take in more Equity funds along with some balanced funds.
The team as a whole will perform even when one player gets injured. Likewise, the MF portfolio will perform even if one stock gets hammered.
Defining Mutual Fund types based on Players
1. Large Cap Equity Fund – are like the main batsmen. It is their responsibility to put the maximum runs on the board. Similarly, these funds have the biggest companies under them which are major drivers of growth in an economy.
Large-cap mutual funds are like Sachin Tendulkar, Virat Kohli, and Rohit Sharma.
2. Small-Cap Equity Fund – are like hard hitters. These types of players are explosive. If they start hitting they can pile-up runs like no one else. But there are chances of getting out.
3. Liquid Fund – are like 2-down batsmen. These are known for their reliability and consistency. They also provide much-needed support in bad times.
4. Balanced Fund – are like all-rounders. As the name suggests, they can bat and bowl well. These mutual funds have a good balance of equity and debt investments in their portfolio.
Balanced Funds are like Kapil Dev, Jacques Kallis, and Ben Stokes.
5. Exchange-Traded Funds – are like team captains. The captain is active throughout the game, even when they are not actually batting or bowling. Similarly, these funds are traded in stock markets actively.
ETFs are like Ricky Ponting and MS Dhoni.
Mutual Funds have a Coach
Any team is only as good as its coach. It is the job of a coach to select team players and to unlock the team’s full potential.
In the case of Mutual Funds, the Fund manager is the Head Coach. He has few subordinates with defined roles like in cricket where a team has a different batting and bowling coach.
Moreover, the Asset Management Company (AMC) is the organization that is responsible for all activities of the fund. The Fund Manager is the chief of AMCs.
Umpires regulate Cricket and Mutual Funds
In cricket Umpire’s call is the final word. Umpires are the authority to check that all laws of cricket are followed and nobody resorts to any type of cheating or malpractice. The 3rd umpire is called upon only a few times in a game to review decisions taken.
Likely, the Securities Exchange Board of India (SEBI) is the Umpire that serves as a watchdog. SEBI has investor interest at heart and does so by ensuring that no cheating occurs. Association of Mutual Funds of India (AMFI) is the 3rd umpire in the world of Mutual Funds.
Cricket provides you with happiness and enjoyment. But Mutual Funds can provide you with something valuable. It is increasingly important to become self-sufficient.
If you show even a little enthusiasm in investing that you show in cricket, you could get set for life.
After reading this, whenever you watch a match your concepts about Mutual Funds will improve automatically.