Portfolio for investments can be of many types. Few of them can include shares, bonds, FD, commodities, real estate, etc. Here we will talk about commodity as an investment portfolio since many use this to diversified (alternate) their portfolio. Hence we should know various types of Commodity Derivatives that are allowed to trade in the Indian market.
Time period (3 months, a year or 10 years) for which one wishes to stay invested and the objective (marriage, education, home purchase, foreign trip etc) should be clear. Every commodity has its range and characteristics which are different from each other.
Commodities can be classified as
And many more…
Bullion usually consists of precious metals such as gold and silver. Many investors (especially old aged) consider gold as one of the best option (youngsters go in for EFT’s). Be it in terms of ornaments or bars /coins. It acts as long term hedge for one’s portfolio against uncertain volatile condition arising out of government policies or change in personal financial conditions.
Uncertainties can be of any type like change in government rules and regulations, change of power at top, high inflation, free fall of stock market, monsoon conditions (floods, drought or normal), uneasy or war like situation with neighboring countries, global economic slowdown, etc. which has its effect on bullion prices (positive or negative). In turbulent times long term returns from real estate, stocks, equities, bonds etc usually underperform. Usually, these follow certain cycles. Bullion is virtually equal to ready cash, anytime and everywhere.
Hence bullion should be a part of everyone’s investment portfolio. It gives security and protection in bad times. Though appreciation and return on investment vary, still depending upon the conditions, it is advisable to have bullion investment allocation in your portfolio in the range of 15 to 20 %. Investment in bullion can be in a systematic way, purchasing small quantities whenever one has surplus funds. And build upon the portfolio gradually.
2. Base metals
Aluminum, copper, lead, nickel, tin and zinc are the base metals which can be traded on an exchange. These are metals that oxidize, corrode or tarnish relatively easily when exposed to moisture or air. They have their use mostly in industrial units and are commercial traded and usually in huge quantity. These are mostly raw materials for industries. If one has knowledge regarding the surplus and shortages of availability of these commodities one can use for long term fundamentals. As with any other asset, base metal prices can also rise and fall on speculation by investors and traders.
Crude oil and natural gas are traded on Commodity Exchange. There are many companies which provide commodity tips. Companies dealing in energy use this as the hedge to tide over the fluctuating prices. Speculators can use derivatives to profit from the changes in the underlying price and can amplify those profits through the use of leverage.
They have their use mostly in industrial units and are commercial traded and usually in huge quantity. You can “play” in energy if you have deep pocket and the heck to “smell” the favorable/unfavorable conditions from OPEC meetings, Gulf war, Syria crisis, fluctuations in USD, etc. for future demand and requirements. Oil, coal, electricity are considered as most useful energy sources for driving industrial growth.