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Commodities That You Must Consider To Invest In

IndianMoney.com Research Team | Posted On Thursday, March 14,2019, 03:57 PM

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Commodities That You Must Consider To Invest In

 

 

What Are Commodities?

A commodity is a raw material or primary agricultural product that can be bought and sold easily like gold, tea or coffee. Commodities in economics are goods or services that have full or substantial Fungibility. Most commodities are raw materials, agriculture and mining products. The price of commodities is usually determined as a function of the market as a whole.

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SEE ALSO:  What is a Commodity?

Commodities That You Must Consider To Invest In

Crude Oil

Crude is a naturally occurring, unrefined petroleum product which is a composition of carbon deposits and other similar organic substances. Crude oil is used to refine and produce petrol, diesel and other petroleum products. Crude oil is a non renewable energy resource and hence it is of great value. Also, the fact that crude oil is a limited resource makes it even more expensive.

India is the third largest crude oil importer in the world. As per the crude oil import reports in 2016, Indian crude oil consumption amounts to USD 60,869 million. India is importing crude oil from the below mentioned countries:

  1. Saudi Arabia: 19.9%
  2. Iraq: 16.2%
  3. Iran: 11%
  4. Nigeria: 10.9%
  5. United Arab Emirates: 9.3
  6. Venezuela: 8.3%
  7. Kuwait: 4.5%
  8. Qatar: 2.8%
  9. Malaysia: 2.8%
  10. Angola: 2.8%
  11. Mexico: 2.4%
  12. Brazil: 1.6%
  13. Egypt: 1%

Oil and Natural Gas Corporation ONGC and Reliance Industries Limited are the major companies involved in oil exploration both in India and abroad (upstream). These companies are also involved in downstream process of refining of crude oil.

India decided to pay Iran in Indian Rupees from November 2018 due to the US sanctions. As per the US sanctions, no trade deals are to be made using US dollars. State owned Oil refiners like Indian Oil Corp (IOC) and Mangalore Refinery and Petrochemicals Ltd (MRPL) have an option of routing payments to Iran through IDBI bank or UCO bank.

SEE ALSO:  Best Commodities To Invest In

The marketing of petroleum products in India is done by the following state owned public sector oil marketing companies or OMCs:

  • Indian Oil Corporation Ltd (IOCL)
  • Hindustan Petroleum Corporation Ltd (HPCL)
  • Bharat Petroleum Corporation Ltd (BPCL)
  • Numaligarh Refinery Ltd (NRL)
  • Mangalore Refinery & Petrochemicals Ltd (MRPL)
  • Bharat Oman Refineries Ltd (BORL)

Reliance, Essar and Shell are the popular private oil marketing companies in India. 

Investing in any commodity is risky unless you get the physical commodity in hand. The price of crude oil is highly volatile. If the demand for crude oil increases, then the crude oil price too increases. If the oil stocks go up, then oil price drops.

The crude oil price depends on a lot of factors. It depends on the reports submitted by the Organization of the Petroleum Exporting Countries, OPEC. OPEC is a 14 member nation inter-governmental organization. It was founded in September 1960 at Baghdad and is currently headquartered at Vienna, Austria. Below mentioned are the member nations of OPEC:

 Algeria

 Angola

 Ecuador

 Equatorial Guinea

 Gabon

 Iran

 Iraq

 Kuwait

 Libya

 Nigeria

 Republic of the Congo

 Saudi Arabia

 United Arab Emirates

 Venezuela

The crude oil price also depends on demand and supply, derivatives and the development and growth of the emerging economies across the globe.  

Gold

Investors must know about the various forms of buying and investing in gold. Buying gold is the most traditional form of investing. Having gold in hand is as good as having hard cash. Gold is highly liquid, meaning it can be exchanged for money in no time.

The most popular way of investing in gold is buying gold jewelry and ornaments. Gold jewelry and ornaments are extremely liquid in nature. The only catch is that investors would lose a certain percentage of their investment due to making and wastage charges.

Another popular way of investing in gold is buying gold bars and coins sold by banks. There are no wastage and making charges levied on these. Banks only sell gold bars and coins and don’t buy them back.  

Buying Golden bullion is a good way of investing in gold. Minimum investment required to start investing in gold bullion is high and not many can afford this option.

Another option of investing in gold is through gold exchange traded funds or Gold ETFs. Gold ETFs are similar to mutual funds. Gold ETFs are invested only in gold. Gold ETFs are performing well of late. Fund maintenance charges are low and gaining popularity each day.

Base Metals

Base metals are those metals that are used in commercial and industrial applications like construction and manufacturing. Aluminum, zinc and copper are the popular base metals.

NMDC, Hindalco and Vedanta Limited are the leading base metal mining companies in India.

The price of base metals is related to overall demand scenario. India is the fastest growing economy in the World and hence it is safe to say that domestic demand for base metal would remain quite strong for a good amount of time.

Conclusion 

In addition to the above mentioned commodities, the other good options to invest in commodities are platinum, silver, lithium and cotton. These commodities have performed relatively well over the last few years.

Do your research thoroughly before investing in any commodity. You must consult a specialist if you are unsure of picking the best available option.

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