Commodities, Equities and Investment: The Trio Explained
Investments | by 2 | on 2020-10-15 04:35
Everyone wants to save more and keep their future secure. Investing is one of the options that everyone opts for especially given an extremely dynamic financial environment that we live in. Financial stability and security ensure you stay put and can easily handle any unforeseen events. Investing in stocks is a great way to grow financially. If you are planning to have a long term investment, stocks will come handy. Commodities and equities are also other ways to put your money in for investment.
Today we will see what are commodities and equities all about and ways you can invest in them.
Many stock investment platforms define an asset or product purchased with a hope that it will generate income or appreciate is known as an investment. This return is expected from some time in the future. Investments can be of or in any form and industry. It can be in bonds, stocks, real estate, other businesses and so on.
The major goal of investment is with an expectation of return from it. There is no investment that involves no risk. Oftentimes there is more risk involved in an investment than the returns that you can expect. Today, in this blog we will see the two major types of investments – commodity investment and stock/ equity investment. Online mutual funds investment is also common these days.
Commodities refer to raw materials that are either used as a primary product for consumption or a secondary product to produce something else. Investing commodities provide a better advantage when the stocks are going down. This is happening because the investors treat this as an alternative asset class when the stock market is not performing well. For this very reason, many investors make a well-balanced well balanced investment in both stocks and commodities. Commodities are broadly classified into bullion metals, base metals, energy and agricultural products.
It’s a thing in the past when humans used commodities to trade for other goods. This was also called the barter system. Under this, one commodity was traded for another. It was not until the introduction of currencies that people had other modes of doing business. In the modern world, people do trade through commodities but not exactly as that of a barter system. The trade-in commodities are extremely affected by the nature of demand and supply of a product—more the supply, more the demand and hence more of production.
Modes of investing in commodities
The various options to invest in commodities is by investing in raw materials that are in physical form like metals, or one can also opt for futures contracts or exchange-traded products. A future contract is when two parties agree to exchange some commodity at a future date. One can also invest in mutual funds related to commodities trading. Online commodity trading has also become common these days.
Benefits of commodity investment
Commodities investment helps investors at the time of inflation. This is because during inflation, the prices are generally high due to high in demand.
Commodities and commodity stocks tend to provide returns that differ from usual stocks and bonds. This ensures better management of portfolios.
Every commodity acts as per the market it has for the product it is. Individual fluctuation however does not majorly affect the total commodities investment. This way, since the recent past, rise in various commodity prices has given a positive impact on various company stocks.
Risk/ disadvantages in Commodity investment
Primary risk – The risk factor in commodity investment is extremely unforeseen. This is because there are so many aspects that determine the production of commodities. It can be climate, demography, taste and preferences of customers, epidemics, disasters and so on. This keeps the commodities returns mostly volatile.
Unsteadiness – ETPs or Exchange Traded Products track a single commodity and so the unsteadiness in that commodity market can hit the commodity investment in a major way.
Foreign Market – Factors in foreign markets such as political economical factors are also involved.
Additional charges – There are additional charges while investing commodities like commodities transaction tax that can be calculated using a commodity brokerage calculator. Other costs involve stamp duty charges, exchange transaction charges, and GST costs.
Equity also called as shareholders’ equity is the amount they hold in the ownership of the company. When a company liquidates the monetary value of the same is returned to the shareholders. Shares in equity is the most prominent aspect in a company’s balance sheet. It is one of the main terms that determine a company’s health. There are many best stock investment platforms in India that offer a list of best equity shares to invest in.
Equity is calculated by subtracting the total liabilities from the total assets of the company. A significant gain from investing in stocks or equity is that there are high possibilities of the principal amount to multiply over time.
Benefits of investing in Equities
Possibilities of principal amount multiplying over time that comes in the form of capital gains and dividends.
It is a diversified investment option for an investor with a typical minimum amount.
Tax benefits that come with investing in equity shares is worthy to note. When there is more gain for this investment through capital gains then tax is charged at a much lower rate than the income.
Another major advantage of share capital is the ease of transferability. There is ease of transfer of shares into another person or a new shareholder. Also, the amount shares you hold determines the amount of voice you have in managerial and company decisions.
Risk/ disadvantages in Equity investment
Excess of equity shares will overcaptilize the firm and will put it at a high risk of liability.
The value of investment is often destroyed as the share value if often fluctuating. Also the total cost of serving equity is higher than the debenture cost.
If a company performs poorly the shares of that company will tend to fall below the original price to which it was sold initially.
Sector specific risks also affect shares significantly. When a particular sector faces disturbance due to any external factors then the shares in that industry tends to fall.
Stock investment platforms often stress upon the above mentioned important factors to consider while investing in the stock market or in shares. Making the best use of online commodity trading also helps now that technology is advancing rapidly. You can check for the best kinds of investment to do by referring to or keeping a note of market trends by reading from various stock market information source related websites.
Some golden rules to follow as a word of precaution
- Don’t get over exposed
- Do not trade against trend
- Never borrow others’ and invest
- Avoid taking tips from unknown sources
- Say a BIG NO to fundamental stocks
- ‘Trading is a business’, treat it as one
- Do not get emotional when you are trading keep it straightforward and clean
- Understand and respect trade fundamentals
How to trade in commodities?
There are many ways to trade in commodities. Given the improvement and drastic changes in technology, one can easily trade in commodities through online commodity trading. This platform offers an easy and convenient mode of trading in commodities.
Investing vs. Trading: what’s the difference?
Investment focuses on long-term returns. It is mainly referred to investing in stocks after carefully analyzing a company’s performance and reputation. On the other hand, trading is for short-term strategies to multiply returns. Trading is buying or selling of stocks to aim for profits. This is done by studying market trends.
How to start investing in stocks?
You can start investing in stocks by opening a brokerage account online. While opening this account, you will be asked to determine the kind of investor you are. You can start investing in small things by putting some money in mutual funds. You can reach out to any online broker to help you with your first investment.
How do I open a commodity trading account online?
You can open a commodity trading account online by filling a form online with the necessary details and documents. To open a commodity trading account online with Zebu Traders, click here.