A Kinship Between Cricket And Investment

With cricket fever growing with every passing day by unexpected wins and India’s marvelous performance throughout in Cricket World Cup 2011, the term ‘criconomics’ instantly comes to mind.  ‘Criconomics’ is a term that relates the concepts of cricket with that of economics to make them interesting and easily comprehensible. The world of cricket is tremendously similar to economics (personal finance per se) that takes place in our lives on an ongoing basis. Cricket has become a way of living for most of us and if we look closely, it has become metaphorically related to our investments too. Let’s travel the world of cricket once again to find out different formats of cricket and gauge their similarities with the patterns involved in investment that we undertake.

Test cricket, the oldest and time-tested form of cricket is undoubtedly cricket at its best, which is similar to the time-tested technique of investment in those asset classes, which would give assured returns after a long period of time. This involves Public Provident Funds (PPFs), backed by government. It starts generating returns only after 15 years and is the oldest and traditional form of investment available to previous generations. Also, retirement plans, a specialized form of ULIPs (United Linked Investment Plans) where premiums are invested in debt and equity till you arrive at your retirement age and then settlement options start usually after the vesting age of 55 to 60 years. The National Savings Certificates (NSCs) and other post office deposit schemes also give options for long-term assured returns. In mutual funds family, closed-ended Mutual Funds (MFs), especially ‘Thematic’ ones in nature, help investors in generating medium to high returns in long-term. Infrastructure MF is one of its examples. In such specialized funds, investment is undertaken in special sectors and businesses for a long period of time, till desired returns are achieved. Mutual funds invariably invest in a variety of sectors/ businesses, and result in automatic diversification of portfolio as compared to investing directly in the stock market.

Like test cricket is said to be an ultimate test for all cricketers and teams as it is an accurate measure of a teams’ capabilities and efficiency; long-term investments are a test of portfolios and their managers, their investment choices, strategies and the quality of returns they are able to generate.

Long-term fixed deposits (FDs) are another good and tax-efficient avenue. Like those test matches that would go draw, there are forms of life insurance, called ‘term plans’, that would give payouts only in case of death of the person insured and no payouts will be made in case the person insured stays alive till the maturity. The other option, which allow payments to be made at the time of maturity, if the person insured stays alive till maturity, are called ‘endowment’ insurance plans. In this case, no payment has been made in case of the death of the person insured before the maturity of the plan.. There is one another version of term plan, which is called whole life plan. It requires you to pay premiums till you are alive, and the payout will be provided to the nominee at the time of the death of the insured person. In other words, it is an extended longer term game.

*All values are based on CAGR for last 5 yrs

One-Day International (ODI) cricket matches or instant cricket, were originally started in England at national-level as fans wanted to watch shorter and more dramatic version of cricket. It is similar to the way we would expect our returns from investments to come to us – faster and with greater quantum. Thus emerged the financial products such as ULIPs, where the money you invest goes to stock and debt market in a definite proportion for a medium period of time. The fund managers, here, help you keep the investment shuffling from one form to another, from time to time to give best possible returns. There are also FMPs (Fixed Maturity Plans), which are closed-ended mutual funds having an investment time horizon of three to four years and an aim of providing medium to high returns in medium-term perspective. Other members of the same family are real estate investments, which take benefit of real estate cycle; gold and silver ETFs – a unitized form of investing in these metals that can be traded like shares on the stock exchange during entire trading day; open-ended mutual funds; and fixed deposits of medium-term.

*All values are based on CAGR for last 5 yrs

After a few decades of the emergence of ODI format, the game of cricket has been further shortened to catch up with the busy schedules of people and make it more interesting. It was the time when Twenty20 has come into being. The Twenty20 form is a glaring example, wherein the modification enforces 20 overs to each team — a limited opportunity to maximize returns. This limited opportunity, in the world of finance can be aligned to the recovery time of economy when stock markets rise suddenly, giving high returns at high risk in a very short span of time. In addition to this, high inflation periods occur in a business cycle, where investing in commodities such as gold and oil are highly volatile and thus risky, but good at generating returns. Also assured returns can come in short-term through short-term fixed deposits and bank recurring deposits, which are easy to initiate and reasonable on returns.

*All values are based on CAGR for last 5 yrs*

Short-term investments would also cover tax saving strategies and instruments that imbibe in themselves a focused task to be accomplished within a fixed period of time.

Even lesser talent gets recognized on the pitch, if one has the right attitude and right focus. Investing, likewise, requires an attitude that suffices you to earn the targeted returns. You focus on your portfolio, assets you pick and choose to invest in, horizon that you choose for each asset. The horizon to keep investing in ultimately gives you the ingredients to reach to the winning end. This is similar to the way the decisions of the captain decide the fate of the match.