Every savvy person who sets out to invest knows that you can’t take a gamble on a single form of investment. Although, “placing your eggs in various baskets” may not wipe out risks completely, there is some reward when you aim to diversify your investment portfolio. Diversification allows you to reach investment and financial goals faster and maximise your returns, than if you did not diversify.

Plenty of invest vehicles exist today, and the common ones are stocks, bonds, mutual funds and currencies. Stocks comprise the asset class that is invested in the most today, and more and more youth are getting onto the stockpile. You can easily open a demat account online and start. While this is good, you may want to reach for an asset class that makes up commodities. Nonetheless, there are some basics you need to understand before you think of the best commodities and ways to invest in them.

Commodities and Investment

Commodity trading online can take place just like stock trading online does. Commodities are fundamental goods that are transformed into services or goods. Basically, a commodity represents the raw material that is used to make a product. Several commodity investments for novice and experienced traders exist. However, before you leap into the den of commodity investment, you have to know what it entails and the top commodities to consider buying.

Commodity investing is age-old, going way back in time even before bonds and stocks were ever exchanged. Those investors who have a hunger for commodities can invest directly in the physical commodity (like actually buying physical gold, for example), or purchase stocks in commodity firms, invest in the commodity’s mutual funds, or ETFs (Exchange Traded Funds). If you trade in the segment of commodities only, you do not need to open a demat account. Only if you trade in futures, you use the MCX, and need a demat account.

The Benefits of Buying Commodities

Among the greatest benefits of investing in a commodity is its nature of protecting the investor from the ill effects of inflation. During the periods when inflation raises its ugly head, the demand for any commodity tends to increase. In turn, this pushes prices up. Since you do not have to open a demat account to trade commodities, your entry into such investing is easier than you may think.

Besides the diversification of a portfolio that you may think you can get with any upcoming IPO, stocks, or equity mutual funds, commodities give you more room to diversify. They also help to maximise your returns. The global demand for commodities is always on the strong side, and this helps to mitigate risks of volatility in interest rates, exchange rates, shifts in the markets and uncertainties of the economy. Therefore, the stocks of commodities that are manufactured by companies also see positivity as they generate positive returns for investors. You can buy and sell commodities through commodity trading online, but you should know the best commodities out there and how you can specifically purchase them.

The Top 3 Commodities

You can invest in commodities in a range of ways. Today, the top three in the list of commodities are crude oil, gold and base metals. It is worth taking a look at all three and finding out how to invest.

• Crude Oil - After crude oil is produced, it is refined into several products. These include gasoline and other products that have petroleum at their base, like plastics, shingles, linoleum, cosmetics, ink, solvents, asphalt, and hundreds more. Nonetheless, what impacts the prices of crude oil? In general, crude oil is affected by demand and supply. If the demand is high, the supply is low. Obviously, prices tend to rise at such times. With waning demand, crude oil prices drop. Furthermore, when the demand is high in emerging countries like India and China, overall demand goes up and prompts rising prices.

This is good information to tell you when you should invest, but how can you invest? The best ways to invest in crude oil are to consider buying shares in oil companies, ETFs, or mutual funds that invest in crude oil companies. For buying shares in oil companies, you will have to open a demat account.

• Gold - In India, investors and laypeople alike need no introduction to gold, both as an investment and a physical ornament. Gold is used in the making of jewellery, by central banks, in technology, and for investing. It is popularly used as the go-to investment instrument in India, having both sound financial power and religious connotations. Traditionally, gold is viewed as one of the safest investment routes and a hedge to fight inflation. Moreover, with its degree of high liquidity, it is a safe bet for a rainy day. Buying it off the counter is the way that most Indians prefer its investment.

Physical gold is available in 22 carat gold jewellery, and you can buy bars and coins in 24 carat gold. However, physical gold comes with pitfalls of safety and storage. Hence, many investors prefer e-gold and digital gold. You can invest in these online. If you prefer safer gold investment, you can buy Sovereign Gold Bonds, backed by the Reserve Bank of India. You don’t need to open a demat account for either of these investments, but if you wish to purchase gold Exchange Traded Funds, you must have a demat account. There are also gold mutual funds you can consider, or invest in stocks of mining companies of gold.

• Base Metals - These are metals like aluminium, copper and zinc. They are affordable and their supply is plentiful. As they are high in demand, their prices may be steady. However, their real value presents itself when their global applications are considered. The best way to invest in these is through companies that produce them, like steel companies. Most investments are made through the channel of equity stocks.

Trusting Commodities

There is no specific time to invest in a commodity. You can do so whenever you wish to add diversity to your portfolio, and there are several modes of investment. If you wish to broaden your scope of investment, you can open a demat account and start investing in direct stocks of commodity companies. Another way to invest and allocate your capital is by selecting any upcoming IPO of a company that is related to commodities.

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