Things to keep in mind while investing in commodities

Things to keep in mind while investing in commodities

If you wish to diversify from traditional investment products like bonds, shares and mutual funds, trading in commodities is an interesting idea. But where should you start and how should you invest?
Here are some things to keep in mind when you invest in commodities

1) How to start investing in commodities
There are a lot of different products you can choose. Gold, silver, crude oil, natural gas and agricultural products are some of the popular options. But where should you start? Well, it is always good to begin trading in a commodity you know. For example, if you work in the mining industry, you may have sufficient knowledge about metals. Similarly, if you work in the confectionery industry, you may be updated with regular changes in the price of sugar. Having a basic idea of a commodity can be a good starting point.

2) How to trade
In commodity trading, an investor decides to buy or sell a commodity at a pre-determined price on a specified date in the future. There are different ways to trade in commodities. You can purchase Exchange Traded Funds (ETFs). Some funds invest in a commodity or a specific sector. Others diversify and invest in many different sectors. If you are a novice investor, it is best to allocate your capital into different assets so that you can minimize your risk. You can also invest in stocks of companies related to commodities.

3) Manage risk
Metals, agricultural products and petroleum products are all clubbed under the title commodities. However, this does not mean they are all the same. Different commodities have different risks. Some of them have small price movements during a day while others show great volatility. Identify your risk appetite and invest accordingly. You don’t want to find out any unwanted surprises after investing.

4) Create a stop loss
Losing money in the financial markets is nothing new. Most investors make wrong investments from time to time. But those who create a stop loss can rebound from these losses. For example, would you rather lose Rs 10 or Rs 100? The answer is obvious, right. Trading in commodities can be a bit risky, especially if the commodity is volatile. By creating a stop loss, you can manage the risk and minimize your losses.

5) Be prepared
To gain success in the commodities market, you need to be prepared. Be updated on the latest events (nationally and globally) that influence commodity prices. Identify the factors which influence the change in prices of a commodity and take appropriate investment decisions based on these factors. Also, don’t forget to improve your trading strategies through research and analysis. This is very important in a commodities futures market.

The commodities market is influenced by many factors. Government policies, macroeconomic factors and global events are some of the key influencing factors. As an investor, it may not be possible to control all these different factors. However, you can control your own emotions. And this is a very important trait in commodities trading. In addition to the above points, remember not to let fear or greed influence your investment decisions. Do your research and invest confidently and over time, you can enjoy the fruits of your investments.

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


What Is Commodity Trading In India?

The stock market has always been a paradise for traders and investors. They invest their savings in the stock market to make good returns and build a huge corpus over time. Another popular avenue for traders is commodity trading. Commodity trading in India has a long history. In fact, India is among the few countries that started trading in commodities since a very long time. Today commodity trading in India has a significant role and importance. In this article, we will walk you through the commodity trading basics and its related concepts in detail.Let us first learn about the meaning of commodity trading.What is Commodity Trading?A commodity is a group of assets that are important to support our lives like metals, food, energy, etc. When such a commodity can be traded on an exchange and has a price change, they can be purchased and sold just like the stocks, this is termed as commodity trading. In India, there are four classified categories of commodities, they are:• Agriculture – Includes items such as Corn, Coriander, Chana, Castor Seed, Wheat, etc.• Energy – Includes items such as Crude Oil, Natural Gas, etc.• Metals – Includes items such as Copper, Gold, Silver and Platinum• Livestock and Meat – Includes items such as Eggs, Pork, Cattle, etc.Commodity trading is a profession for many traders in India. The trader uses the price fluctuation in the above commodity prices to trade and find opportunities to make money. Now that we know what it is, let us learn where you can invest in commodities in India.Where Can You Invest in Commodities in India?Anyone living in India can trade in commodities through the exchanges. There are six commodity exchanges in total where you can trade in India; they are• National Commodity and Derivatives Exchange – NCDEX• National Multi Commodity Exchange – NMCE• Multi Commodity Exchange – MCX• The Universal Commodity Exchange – UCX• Indian Commodity Exchange – ICEX• Ace Derivatives Exchange – ACEKnowing about the commodity markets in India, let us now learn about investing in the commodity market.How to Invest in the Commodity Market?You can trade in the commodity market through a futures contract. In this type of contract, you enter into an agreement to buy or sell a specific quantity of a commodity at a future price. Every commodity is available for trading through the futures market. The traders, depending upon the predicted price movements take their position. Like for example, if the trader expects the price of a commodity to go up, he would purchase a specific quantity of the commodity and go long. Similarly, if the trader expects the price of the commodity to go down, the trader sells a specific quantity of the commodity and goes short.As you are now aware of the ways through which you can invest in the commodities market, let us now know about the commodity trading time in India.Commodity Trading Time in IndiaThe commodity markets in India is open on all days of the week except Saturdays, Sundays and holidays declared by the exchange. The market timings of the Indian commodity market is as follows:• Agri Commodities: 9 a.m. to 9 p.m.• Bullion, Metals, Crude Oil and Internationally linked Agri Commodities: 9 a.m. to 11:55 p.m.In the year 2018, The Securities and Exchange Board of India (SEBI) extended the commodity trade timing to the above timings in order to deepen the commodity markets as well as to increase the participation of stakeholders such as value chain participants, farmers producers organisations, foreign entities having actual exposure to Indian physical markets, etc. There are many benefits of trading in the commodities market. In this section of the article, we will learn the benefits of commodity trading.Benefits of Commodity Trading• HedgingHedging plays an important role in commodity trading. It protects the traders from price fluctuations as they enter into an agreement at a pre-decided price. • SpeculationSince commodity trading is very popular, traders speculate the future price movements and make heavy profits out of it. • ArbitragingThere are instances when the price of a commodity varies in different markets. The traders take advantage of such a situation by arbitraging. They buy a commodity in one market where the price is low and instantly sell it in another market where the price is high. Individuals wanting to trade in the commodities market often find it difficult to select a commodity broker. In the following section of the article, we will look at how the selection of a broker should be done.How to Select a Broker for Commodity Trading?Selecting the right broker is an important part of commodity trading as your whole experience in the commodity market will depend on it. While selecting any broker, you must look at their credibility and service record. Since your trading experience will depend on the services of a broker, check whether the broker provides the facility of commodity trading online. Another important criterion is the brokerage rates charged by the broker. So, the broker selection must be made after considering all these factors. While selecting the broker, you must ask them to provide a demo of the services provided by them on their trading platform. Test the commodity trading online through the desktop or mobile application and understand the working of the platform. Another important factor that must be considered is the customer support team of the broker. Check how proactive and strong the team is to assist you during any problem or query. Understand with the broker the process of depositing the margin money. Last but not least, you must select the broker who is certified. IndiaNivesh is one such broker who is well known to fulfil all the above criteria and provide its clients with a hassle-free experience. After selecting the right broker for commodity trading, you must open the commodity trading account. In this section of the article, we will learn about the process of opening a commodity trading account.Opening Commodity Trading AccountThe primary requirement for trading in the commodities market is to open a trading or demat account. All you need to do is fill an application form and submit documents like your identity proof, source of income, financial statement, etc. The broker then, depending upon the financial details submitted by the individual, approves or rejects the application. This is an important step as brokers want to be sure that the applicant will be able to meet the debt payments and he does not suffer the losses.After opening a trading account, the next big question for a trader is how much minimum investment is required to trade in commodities. So, let us have a look at the minimum amount required for making the investment in the commodity market.Minimum Amount Required For InvestmentAfter opening the commodity account, you have to deposit an initial amount to start trading in commodities. Initially, you have to deposit at least 5% to 10% of the total contract value. Along with the margin money, the trader must pay a maintenance margin amount to the broker so as to cover the losses that may happen in case of adverse market situations. Let us now read about the importance of trading strategies while trading in commodities.Importance of Trading PlanTrading strategies are very important in commodity trading. With the right trading plan, commodity trading can be very profitable. The commodity trading plan must be developed as per the financial objectives and risk-bearing capability. The trading plan of one trader may not be suitable for another trader. Therefore, the commodity trading plan must be prepared after conducting research and other necessary requirements. The most important part of commodity trading strategy is not to overtrade and always put a stop loss. Furthermore, the trader must put various risk management techniques to maximise his returns and minimise the risk in commodity trading. IndiaNivesh is one of the leading broking firms that provide you all the assistance along with risk management techniques to make commodity trading a profitable venture for you.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

read more


Things to keep in mind while investing in property

Investing in a real estate property comes with a lot of terms and conditions. When you decide to invest in a property, you may find that the situation is completely different from what you have in mind. To avoid the confusion and legal hassles later on, there are a few things you should keep in mind when you invest in a property.1) Background of the builderReal estate deals involve large sums of money. When you buy a property, you make huge upfront payments followed by regular EMIs. So, after buying the property, you don’t want to find out that the property or the piece of land is under litigation. Experts recommend that you do an extensive background check on the builder, just to be on the safe side. Check out his past projects to verify his authenticity. 2) Ensure all documentation is properWhen you zero in on a property, you should ensure that all the required documentation for the property is in order. For instance, if you buy a residential property on the outskirts of the city, you should ensure that the land in discussion is not an agricultural land. Get a no-objection certificate (NOC) from the development authority in the city to avoid legal hassles. Similarly, ensure that you obtain the necessary approvals for the entire layout of the project from the local authorities in the city. 3) Total cost of the propertyIn order to make the deal exciting, many brokers often mention only the basic cost of a property. However, when you sign on the dotted line, you may find out that there are additional costs included such as development fees, parking charges, club charges and other statutory charges. Adding up all these additional charges can escalate your costs pretty quickly. That’s why you should always ask for the final cost of the property before you make the transaction. 4) List of banks financing the projectIt is no secret that many real estate projects in cities across the country are simply languishing because of lack of funds. The project may have kicked off very well but without enough cash to complete, banks may hesitate to finance them. That’s why, when you finalise a particular property, see which all banks are ready to fund the project. Go through the list and select the bank that offers a loan with the best rates that are suitable for you. 5) Check size of propertyIf you are investing in a residential property, remember that the ‘super built-up’ area is different from the actual size of the apartment. The super built-up area that is generally mentioned in advertisements and brochures includes common areas in the apartment like the lobby and the staircase. In reality, the carpet area of the apartment could actually be almost 30% lesser than the super built-up area. Ensure that you always go by the carpet area and not by the super built up area to avoid any surprises later.The bottom lineAs an investor, you are paying good money for a property. In return, you need to ensure that you are getting what you pay for. By keeping the above points in mind, you can make good investment decisions when you plan to buy a real estate property. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

read more

Are you Investment ready?

*All fields are mandatory

related stories view all

  • Cost Inflation Index - Meaning, Calculation & Benefits

    Inflation is an economic term and referred to the continuous rise in the price of goods and services, thereby reducing the purchasing power of the money. The pinch of inflation is felt by all sections of the economy, be it, the consumers, investors, and the government.  And, even though it increases the cost of living, inflation is a necessary evil and desirable for the growth and development of the economy. For the reason of inflation, it is only fair to pay more for your goods like comb and brush over the years due to an increase in the price. For the same reason, it is unfair to pay capital gains tax on your assets without taking into account the impact of inflation on the value of the asset. Cost Inflation Index(CII) is the index to calculate the increase in the price of assets year-on-year due to the impact of inflation. What is the Cost Inflation Index? Cost Inflation Index or CII is an essential tool for determining the increase in the price of an asset on account of inflation and is useful at the time of calculating the long-term capital gains on the sale of capital assets. It is fixed by the central government and released in its gazetted offices by the Ministry of Finance every year. Capital gains are the profits arising from the sale of assets like real estate, financial investment, jewellery, etc. The cost price of the asset is adjusted taking into account the Cost Inflation Index of the year of purchase and the year in which the asset is sold, and the entire process is known as Indexation. Cost Inflation Index Calculation The cost inflation index calculation is done by the government to match the inflation rate for the year and calculated using the Consumer Price Index (CPI). Cost Inflation Index India for the financial year 2019-20 has been set at 289. Change of the base year for the Cost Inflation Index The cost inflation index base year was changed in the Union Budget 2017 from 1881 to 2001. The base year was changed by the government to enable accurate and faster calculations of the properties purchased before April 1, 1981, as taxpayers started to face problems with valuations of older properties. The base year has an index value of 100, and the index of the following years is compared to the index value in the base year to determine the increase in inflation. With the change in the base year, the capital gains and tax burden has reduced significantly for the taxpayers as it now reflects the inflated price of the asset realistically. The current Cost Inflation Index Chart for each year is as under- How is the Cost Inflation Index (CII) used in calculating capital gains To calculate the capital gains on your assets the purchase price of the asset is indexed by the cost Inflation Index using the formula below- Indexed cost of the asset at the time of acquisition = (CII for the year of sale/ CII for the year of purchase or base year (whichever is later))*actual cost of acquisition If suppose you purchased a flat in December 2010 for Rs 42 lacs and sold in Jan 2019 for Rs 85 lacs. Your capital gain from the sale of the flat is Rs 43 lacs. The CII in the year in which the flat was purchased is 148, and the CII in the year the flat was sold in is 280. The purchase price of the flat after taking into account the Cost Inflation Index is = (280/148)*Rs42 lacs= Rs 79. 46 lacs  This is the indexed cost of acquisition. Your long-term capital gain after taking indexation into account is Rs 85,00,000- Rs 79,45,946 = Rs.5,54,054. Long-term capital gains on the sale of property are taxed at 20% with indexation benefit. So, your tax liability, in this case, would be- 20% of Rs 5, 54, 054= Rs 1,10,810 Without indexation benefit, the capital gains are taxed at 10%. In this case, the capital gains would be- Sale price of the flat - purchase price of the flat = Rs 85,00,000 – Rs42,00,000 = Rs.43,00,000.  The capital gains tax without indexation benefit will be 10% X Rs 43,00,000 = Rs.4,30,000. Thus, indexation helps reduce the long-term capital gains and reduce the overall tax burden for the taxpayer considerably. Indexation benefit can be used for investments in mutual funds, real estate, gold, FMPs, etc. but is not applied for fixed income instruments like FDs, recurring deposits, NSC, etc. Few important tips to remember about the Cost Inflation Index- If you receive an asset as a part of the will, then in such the CCI for the year in which it was transferred will be considered and not the CCI of the purchase of the asset Indexation benefit for the cost of improvement of the asset is the same as the cost of improvement of the asset. Cost of improvement incurred before 1981 to be ignored. CONCLUSION Cost Inflation Index is an important parameter to be considered at the time of selling long-term assets as it is beneficial for the investors. Reach out to our experts at IndiaNivesh for any queries about capital gains arising from the sale of assets for correct guidance.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

    read more
  • Dematerialisation of Shares – Meaning, Process & Benefits

    The online platform has revolutionised the way we live. Whether it is transacting, connecting with a loved one, getting updated about the happenings in the world, everything can be done online. When it comes to investments, the online platform provides ease and convenience. Investment in shares and share trading is a prevalent activity undertaken by many investors. They invest their money in the stock of a company with a view to earn profits when the stock value rises. When shares are purchased, share certificates are issued in physical form containing the details of the investor and the investor. However, these physical share certificates are inconvenient, and so the concept of dematerialisation has been introduced. Do you know what it is? What is dematerialisation? Dematerialisation of shares means converting physical shares and securities into an electronic format. The dematerialised shares and securities are, then, held in a demat account which acts as a storage for such shares. Dematerialised securities can then be freely traded on the stock exchange from the demat account. How does dematerialisation work? For the dematerialisation of securities, you need to open a demat account with a depository participant. A depository is tasked with holding shares and securities in a dematerialised format. As such, the depository appoints agents, called, Depository Participants, who act on behalf of the depository and provide services to investors. There are two licensed depositories in India which are NSDL (National Securities Depository Limited) and CDSL (Central Depository Services (India) Limited). Need for dematerialisation of shares Dematerialisation of securities was needed because it became difficult for depository participants to manage the increasing volume of paperwork in the form of share certificates. Not only were there chances of errors and mishaps on the part of the depository participant, but physical certificates were also becoming difficult to be updated. Converting such certificates into electronic format frees up space and makes it easy for depository participants to track and update their investor's stockholding. Benefits of dematerialisation for investors As an investor, you can get the following benefits from dematerialisation – You don’t have to handle the physical safekeeping of share certificates. Since your investments are converted in electronic format, you can easily store them without the risk of theft, loss or damage You can access your online demat account and manage your investments from anywhere and at anytime The charges associated with the demat account are low. Depository participants change holding charges which are minimal and you don't have to pay any stamp duty on dematerialised securities Since no paperwork is required to be done, the transaction time is considerably reduced Given these benefits, dematerialisation proves advantageous. Nowadays, the practice of holding physical securities has become almost obsolete and buying through a demat account has become the prevailing norm for investors. How to convert physical shares to demat? To convert physical shares to demat, the following steps should be followed – You should open a demat account with a depository participant. A depository participant can be a bank, financial institution or a stockbroker who is registered as a depository participant with the two licensed depositories of India You would then have to avail a Dematerialisation Request Form (DRF) from the depository participant and fill the form Submit the form along with your share certificates. The share certificates should be defaced by writing ‘Surrendered for Dematerialisation’ written across them. The depository participant would, then, forward the dematerialisation request to the company whose share certificates have been surrendered for dematerialisation. The request should also be sent to Registrar and Transfer (R & T) agents along with the company The company and the R & T agents would approve the request for dematerialisation if everything is found in order. The share certificates would also be destroyed. This approval would then be forwarded to the depository participant The depository would confirm the dematerialisation of shares and inform the depository participant of the same Once the approval and confirmation is complete, the shares would be electronically listed in the demat account of the investor Buying securities in a dematerialised form If you are looking to buy stock in a dematerialized form, here the simple steps that you can take for the same – Choose your broker for buying the securities and pay the broker the Fair Market Value of the securities that you want to buy The payment would be forwarded by the broker to the clearing corporation. This would be done on the pay-in day The clearing corporation would, then, credit the securities to the broker’s clearing account on the pay-out day The broker would then inform the depository participant to debit its clearing account and transfer the shares to the credit of your demat account The depository would also send a confirmation to your depository participant for the dematerialisation of shares in your account. The dematerialised shares would then be reflected in your demat account You would have to give ‘Receipt Instructions’ to your depository participant for availing the credit of shares in your demat account. This is needed if you hadn’t already placed a Standing Instruction for your depository participant when you opened your demat account. Similarly, for sale of dematerialised shares, the process is opposite. Trading in stocks in a dematerialised format is simple, quick and convenient. It has also become the practice of the current market. So, if you want to buy or sell securities, open a demat account and start trading in dematerialised securities. Should you have any doubts, get in touch with the team at IndiaNivesh who will look into your requirement and lead you towards a quick resolution.    Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

    read more
  • High Dividend Mutual Funds

    Dividend mutual funds are a type of mutual fund that pays a regular dividend to the unitholders of the mutual fund scheme, thereby creating a regular source of income for them. The investment strategy of the fund manager is to invest in a basket of companies that have a steady flow of income and promise to pay periodic payment to the investors. Some investors prefer a regular source of passive income from their investments. Mutual fund schemes that offer a high dividend are a popular choice for such investors. The frequency of payment of dividends is decided by the fund manager and is usually fixed. Dividends can be paid daily, monthly, quarterly, six-monthly, or yearly, and the frequency of payment is mentioned beforehand. However, there is no guarantee on the rate and amount of the dividend to the investors and the payment of dividend is subject to the performance of the fund. There are 2 types of dividend mutual funds based upon the asset class that they invest in. 1. Dividend Yielding Mutual Fund (Equity) • Mutual fund schemes which invest more than 65% of their corpus in equity shares of companies • Like any other equity scheme, they have the potential for higher returns, but also carry a higher risk • Investors should invest in these schemes with an investment horizon of medium to long term 2. Dividend Yielding Mutual Fund (Debt) • Mutual fund schemes which invest more than 65% of their corpus in debt instruments of government and corporations like treasury bonds, commercial papers, etc. • These funds carry low risk and provide average returns to investors • Interest received from the various instruments is paid as a dividend to the investors• Investors should invest in these schemes with an investment horizon of short to medium term Tax treatment for dividend mutual funds Till now, dividend income received by the investor used to be recorded under the income head of “Income from other sources” and such income was tax-free in the hands of the investor. However, as per the Union Budget 2020, the DDT is now abolished for companies and mutual funds. From April’20 onwards, any dividend received above Rs 5000 will be taxed in the hands of the investor. It will be taxed as per the individual tax slabs for both equity and debt schemes. Only debt investors who fall in the lower slabs of 10% and 20% will pay lesser taxes on dividends. For all the others, the taxation would be higher going forward. Why should investors invest in high dividend mutual funds? Dividend mutual funds offer unique advantages to the investors, especially when the macroeconomic condition of the country is weak; these investments provide the reliability of income to investors. The benefits of dividend mutual funds which should be kept in mind while investing in such funds• Fund managers of dividend mutual funds invest in companies which can pay steady dividends and even if there is a slowdown in the economy, as companies do not want to send any negative signals, they avoid curtailing payment of dividends, thus making them less volatile than other funds.• Overall returns from these funds are less affected as compared to other funds as the dividends provide a hedge against market volatility.• In a low-interest rate regime, investors looking for a higher consistent income can opt for dividend mutual funds. Disadvantages of a dividend mutual fund scheme • Returns generated by dividend mutual fund schemes are lower as compared to growth schemes in case of rising markets• These funds are not suited for aggressive investors looking for higher returns from their investment• Moreover, with the abolition of Dividend Distribution Tax (DDT), investors in the higher tax-bracket will have to pay higher taxes on the dividend income. Role of dividend mutual funds in a portfolio Invest in dividend mutual funds with an investment horizon of 7 to 10 years for optimal returns. Investment in such funds should be a part of your strategic asset allocation and to lower the volatility of the overall portfolio. Aggressive investors can allocate less than 10% of their portfolio in such funds. Conservative investors, on the other hand, can allocate a higher percentage to these funds. Essential things to keep in mind while investing in dividend mutual funds • Conservative investors looking to invest in dividend funds should invest in large-cap funds, preferably of blue-chip companies that pay a higher dividend. Investing in companies with a higher proportion in mid & small-cap companies will increase the risk of the investment, thereby defeating the purpose of investment• Invest in a fund which has been in existence for some time and witnessed a few market cycles• Avoid investing in a fund with a small corpus to minimize risk as few wrong investment calls can significantly hamper returns• The expense ratio plays a vital role in determining the overall returns from a scheme. Choose funds with a lower expense ratio   CONCLUSION Investing in high dividend mutual funds is a good option if you are looking for a regular income through dividends. Consult our experts at IndiaNivesh to help you guide through the allocation of funds in these schemes as per your investment horizon and risk profile.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

    read more