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Commodity Investment - How to Invest in Commodities

Have you ever thought about how the various goods and products come into existence? What goes into their manufacturing? Every product or good we use is made up of some of the other commodity. Commodities are the raw materials that are used to produce or manufacture other products. Commodities are of various types like agricultural commodities, energy, metals, etc.

The prices of commodities keep changing which affect the price of end products as well. Like for example, rising Brent crude prices will lead to an increase in the prices of petrol and diesel. Since the prices of the commodities keep changing you can consider trading in them and take advantage of the price volatility. In this article, you will learn about how to invest in commodities, the best commodities to invest in and everything related to it.

But before learning how to invest in commodities, let us learn where you can trade in the commodity market.

Where Can YouTrade in The Commodity Market

Investment in the commodities market in India can be done through the commodity trading exchanges. At present, there are three commodity trading exchanges in India, they are as follows:

  • National Commodity and Derivatives Exchange Ltd. – NCDEX
  • Multi Commodity Exchange of India Ltd. – MCX
  • Indian Commodity Exchange Ltd. – ICEX

Out of the above mentioned exchanges, MCX and NCDEX are the most popular among the traders. If you want to trade in the commodities like metal, energy, etc., you can trade through MCX and if you want to trade in agricultural commodities, you can trade through NCDEX. ICEX is known for trading in Diamond.

The commodities in India can be classified into three major categories. They are as follows:

  • Agriculture – Maize, Soya, Spices, Pulses, Fibres, Rice, Wheat, Guar, Castor, etc.
  • Metals – Gold, Silver, Platinum, Aluminium, Copper, Lead, Nickel, Zinc, Steel, etc.
  • Energy – Crude oil, Natural gas, etc.

The above mentioned are the exchanges and types of commodities where you can invest your money. Let us now learn how to invest in commodities.

How To Invest In Commodities In India

The beginners entering the market always have the question in their mind,“how to invest in commodities in India?” In this section of the article, you will learn about the various ways through which you can make an investment in commodities.

  • Invest In Physical Commodities

The easiest way to invest money in the commodity market is by physically purchasing it. The purchase is made in the hope that the price of the commodity will rise and you will be able to sell it at a higher price. One of the best commodities to invest in India and hold it physically are precious metals like gold, silver, etc.

  • Invest In Commodity Futures Market

Futures contract allow the trader to buy or sell a commodity at a set date and at a set time through contracts. The futures contracts trading is for those people who want to play with the volatility of the commodity prices and make massive gains.

  • Investment in Commodity Related Stocks

To avoid the risks of future trading, you can purchase the shares of companies related to commodities. By investing in such stocks, you can take advantage of the commodity price movement and enjoy the returns in the form of price appreciation of the share price.

  • Invest In Exchange Traded Funds

Exchange Traded Funds (ETFs) are the funds that comprise of future contract and allow you to invest in them directly. ETFs can be traded just like stocks and you can hold them without the risk of holding any futures contracts.

  • Invest in Mutual Funds

No one in the market can tell you what a good time to invest in commodities is. To overcome this problem, you can start a systematic investment plan (SIP) in those mutual funds that deal in commodity related stocks.

To invest in the commodity market through any of the commodity exchanges you need to open an account with the broker. In this section of the article, you will learn about how to open a commodity account.

How to Open a Commodity Account

  • The first step towards investing in the commodity market in India is opening an account with a exchange registered broker. The selection of the broker must be done with utmost care. Take the feedback from the people about their services and credibility. Select the broker that gives you the best services at the most affordable rates.
  • The next step is to fill the account opening form with the commodity broker. Along with the form, submit the copies of necessary documents that are needed to open an account. The documents include PAN card, address proof, ID proof, income statement and cancelled cheque.
  • After submission of the documents, the broker will carry out verification of the information submitted by you. On successful verification of the information, you will be provided with the account number and password.
  • As soon as your commodity trading account is opened, you must deposit the margin money. The margin money is equivalent to 5% to 10% of the contract value.
  • After account opening, you can trade at any of the commodity exchanges. Let us learn about how you can trade on MCX, which is one of the most popular commodity exchanges in India.

Trading on MCX

Just like BSE and NSE provides you with the platform to trade in stocks, similarly, trading in the commodities market can be done on the MCX (Multi Commodity Exchange of India Ltd.). In fact, you can find the best commodities to invest in India on MCX. The MCX broker acts as an intermediary between the commodity exchange and commodity trader. On this exchange, you can trade in metals, energy and agricultural commodities. All you need to do is simply place the order with the broker over the phone or place it online using the mobile application. MCX was earlier regulated by Forward Market Commission (FMC) which later got merged with the Securities and Exchange Board of India (SEBI) in the year 2015.

Commodity trading account is the primary requirement for making an investment in the commodities market. Whether you are a beginner or a seasoned investor looking to open a commodity trading account, you can consider IndiaNivesh Shares and Securities Pvt. Ltd. We advise our customers about the good time to invest in commodities, the best commodities to invest in, etc. Contact us to enjoy our hassle-free services.



Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.