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While many investors are happy investing in the stock market, there are others who have ignored raw materials. Commodities like silver and gold are beneficial to investors during economic uncertainties. However, this type of investment is often misconstrued as risky. But, this does not mean that you should ignore including commodities investments in your portfolio. Some of the commodities traded in India are gold, platinum, silver, barley, wheat, Brent crude oil and many others as listed on the SMC Online’s website.
Commodity trading in India started much earlier than in many countries. However, years of scarcity, droughts, foreign rule and Government policies eventually caused the trade to decline. Recently, commodity trading was restarted and India now boasts of six national commodity exchanges alongside numerous regional exchanges. The National exchanges are:
- Multi Commodity Exchange (MCX)
- National Commodity and Derivatives Exchange (NCDEX)
- National Multi-Commodity Exchange (NMCE)
- Indian Commodity Exchange (ICEX)
- The ACE Derivatives Exchange (ACE)
- Universal Commodity Exchange (UCX)
According to the Money control website, Forward Markets Commission (FMC) was set up as a regulatory body, and eventually merged with the Securities and Exchange Board of India (SEB) in September 2015. Considering the buzz in the commodities market, it is time to take a look at what it offers you as an investor.
Diversification of Your Investment Portfolio
Investing in the commodities market offers you the chance to diversify your portfolio. If you are already investing in bonds and stocks, it is advisable that you get into the commodities market as well. This way, whenever there’s a stock market crash, you never have to pull all your eggs from one basket.
Although the commodities values fluctuate like the stock market options, they react differently in various economic and geo-political scenarios. Diversification helps improve risk adjusted returns and reduce volatility.
Protection Against Inflation
As the economy drops, money becomes worthless – leading to inflation. Commodities prices eventually rise in high inflation periods; accordingly the prices of your commodities (if you had invested in them) see an upward trend. Having a few commodities in your investment portfolio will definitely see you benefit some from the upswing.
Lower Margin Trading
As an investor, you pay a margin to your broker that is about five to 10 percent of contract total value; a much lower figure compared to other asset options. This low margin gives you bigger positions at lesser capital.
Trading in commodity futures in India is transparent process. This means fair price discovery controlled by large-scale participation. The huge participation is a reflection of diverse perspectives and outlook of various people that are dealing in the commodity.
Investment in commodities future obviously requires you to have some knowledge and familiarity about commodities market in India. You can get all these information and more on the Indian commodity market through the media and online platforms like Divya Bhaskar. With the information at hand, you are in a better position to protect yourself against inflation. This also means that your investment in commodities can be a long term activity that you can rely on for ages.