Web Trader MT5 
Have you considered how to protect your cash against inflation or how to diversify your assets beyond stocks and bonds? If you have, you may have heard of commodities. Gold, silver, crude oil, and agricultural products are examples of commodities that are tangible resources demanded all over the world. However, most first-time investors in India are not willing to invest in commodities.
How you invest in Indian commodities will depend on your financial situation, risk management, risk tolerance and your experience. Novices often select less risky assets such as gold plans or commodities ETFs. On the other hand, more experienced traders can consider futures in the Multi-Commodities Exchange (MCX).
This beginner’s guide will cover what commodity investing is, the routes that are available in India, how to get an account opened, the cost involved, the risk involved, and the best commodities to invest in.
Quick Answer
- Gold and silver ETFs or funds-of-funds are the most suitable options to invest in commodities in India, especially for beginners. To purchase ETFs, you require a Demat account, whereas you do not need a Demat account to purchase FoFs.
- Advanced participants in India can sell or buy MCX futures of metals, energy, or agricultural commodities. You must have a commodity trading account and understand the use of margin and leverage.
- You can also buy physical commodities, such as bullion bars or coins. But don’t buy jewellery because the fees will reduce its value.
- In investing in certain commodities in 2024/2025, it is advised that gold and silver are the safest options, while crude oil and copper are likely to attract those seeking to diversify their interests.
- Your commodity allocation should always be limited (around 5–10% of your investment portfolio), and you should use it as a hedge instead of your main investment.
What Are Commodities & Why Invest?
Commodities refer to raw materials or natural resources that people usually trade. Metals, energy products, and agricultural goods are some examples. You may put them into two broad categories:
- Hard commodities consist of metals (gold, silver and copper), and sources of energy like natural gas and crude oil.
- Farm products such as soybeans, cotton and coffee are considered soft commodities.
Prices fluctuate depending on various factors, such as the availability of the products across the globe, the power of the US dollar, the interest rates, and the progress of other countries, among other factors.
Why invest in commodities? They provide diversification. When inflation or economic instability is high, commodity prices tend to rise, unlike stocks and bonds.
For example, during the financial crisis of 2008, gold prices rose while stock prices fell. Prices of commodities can fluctuate significantly in a short amount of time, which makes them quite volatile.
Ways to Invest in Commodities in India
In India, there are several options to invest in commodities, including ETFs, FoFs, and SGBs. Some are simple to use and great for novices, while others require special accounts and a higher risk appetite.
| Route | Suitable For | Example | Account Needed | Key Costs |
| Commodity ETFs | Beginners | Gold ETF, Silver ETF | Demat + Trading Account | Expense ratio, brokerage, DP charges |
| Commodity Mutual Funds / FoFs | Beginners without a Demat | Gold FoF, Multi-commodity fund | MF account with AMC or broker | Expense ratio |
| Sovereign Gold Bonds (SGBs) | Long-term gold investors | Issued by RBI | Bank/Post Office (Demat optional) | No management fee, interest taxable |
| MCX Futures | Advanced investors | Crude Oil, Copper contracts | Commodity Trading Account + Margin | Brokerage, SEBI/exchange fees, margin |
| Physical Commodities | Traditional buyers | Bullion bars, coins | None (jewellery shops, dealers) | GST, making charges, storage risk |
Step-by-Step: Get Started (India)
1. Select your route: Choose your preferred method for investing in commodities. Fantastic places to begin are the gold ETFs, silver ETFs, and Fund-of-Funds (FoFs), as they are safe and easy. More qualified and risk-tolerant traders might consider MCX futures.
2. Open the correct account: You have the choice of the account type. To trade ETFs, you need both a Demat and a commodity trading account in India with a registered broker.
FoFs or Sovereign Gold Bonds (SGBs) are available on a mutual fund trading platform and at your bank, or even at the post office. When trading futures contracts, ensure that your broker allows you to enter and trade commodities, as well as maintain your margin money.
3. Complete KYC: You are required to complete the Know Your Customer (KYC) process before investing. Provide the required documentation, including your PAN, your Aadhaar, and your bank details. This will be necessary to ensure that your account is secure and confirmed.
4. Fund your account: Once your account is set up, add money to it. AUPI, NEFT, RTGS or net banking are rapid and easy methods of depositing funds into the account. You must only spend on investments that you can afford, particularly initially.
5. Place your first order: Always place a limit order when selling. This has a better choice in terms of price. The first thing to consider is that you should not overextend yourself when you are new, as it can increase your risks.
6. Track your positions: Check on your investments often. You don’t have to do anything because ETFs and funds are automatically settled. However, you will have to roll over your futures contracts if you wish to hold them after they expire.
At this level, a high number of investors seek credible brokers. Trading sites like STARTRADER offer a user-friendly platform, making them a wise choice for a safe and simple entry point into commodity trading.
Costs & Taxes (High-Level, India)
Every commodity investment comes with costs and taxes. Here’s a breakdown:
- ETFs/FoFs: Expense ratio (0.5–1%), brokerage, and Demat charges. Profits are taxed like non-equity mutual funds, at 20% with indexation after three years or slab rates if not.
- SGBs: Offer 2.5% interest annually, which is taxable. You don’t have to pay taxes on your capital gains when you redeem at maturity. But this only works if you have held the bond for the full eight-year maturity period.
- Futures: Brokerage + SEBI fees + exchange charges. Profits taxed as business income; losses offsettable.
- Physical bullion: 3% GST on gold; making charges cut resale value.
For instance, if you bought ₹5,000 worth of a gold ETF, you would have to pay about ₹50 in brokerage and small DP fees. Futures, however, demand margins of thousands of rupees.
Risks You Must Understand
- Leverage & Margin Calls: Leverage is often utilised in commodities futures, which means you only have to put down a small amount of the contract’s value. This can increase profits, but it can also lead to larger losses. If the price goes the wrong way, you could get a margin call or lose all your money.
- Roll Yield Risk: Futures contracts have a set expiry date, so investors have to “roll” into new ones to keep their stake. When there is contango or backwardation, prices may go higher. These roll expenses can cut into profits and lower returns over time.
- Concentration Risk: Investing a large amount of money in a single commodity makes it highly volatile. For example, if you own crude oil, your portfolio could lose value if oil prices go down. You can decrease this risk by investing in a variety of commodities.
- Physical Storage Risks: There are specific concerns with storing gold, silver, or oil. You need to consider several key aspects: keeping it safe, checking its purity, preventing theft, and ensuring it remains liquid. Many investors believe that physical assets are less valuable due to the associated fees and risks.
- ETF/Fund Tracking Errors: Commodity ETFs and funds aim to track spot prices, but they often fall short. TFees, charges, or difficulty with copying could cause tracking problems. This means that your returns may not reflect the actual movement of the commodity in real life.
The essential idea is that commodities might be helpful, but they shouldn’t be the central part of your portfolio. They should only be a part of it.
Which Commodities to Invest In?
The best commodities to invest in 2024/2025 depend on your goals and risk profile.
- Metals: Gold and silver have long been seen as safe places for metals. Copper is connected to growth in business.
- Energy: Natural gas and crude oil are both very liquid but very unstable.
- Agri: Soy, cotton, and coffee are in demand at certain times of the year, but regular investors may not be able to buy them easily.
Gold and silver ETFs/FoFs are the easiest ways of entry for beginners. Older investors can look into crude oil or copper futures, although they must know the cost of rolling over and how easy it is to sell.
Commodities vs Stocks & Bonds
The commodities do not behave in the same manner as stocks and bonds.
- Correlation shifts: When the economy is experiencing inflation, commodities tend to increase, whereas equities decrease.
- Returns differ: Stocks draw long-term wealth due to the growth of business; commodities are cyclical and volatile.
- Role in portfolio: Most experts recommend that you should not make commodities a major asset category in your portfolio, only 5-10%.
FAQs
A: Yes, you can buy FoFs and SGBs without a Demat. However, to trade ETFs and futures, you need both a Demat account and a commodities trading account.
A: Begin with gold or silver ETFs, FoFs, or SGBs. They are safer and require less investment.
A: Using FoFs or ETFs, you can start with as little as ₹500 to ₹1,000. Futures need a lot bigger margins.
A: ETFs are easy to use and safer. Futures are only for advanced investors due to concerns about leverage.
A: Not always. They are not as convenient as gold, silver, or energy because of high liquidity and the risk of storage.
A: It’s challenging to determine the optimal time to buy and sell commodities. Instead, keep your allocations small and use them to protect yourself from inflation.
Final Thoughts
Investing in commodities can help protect your money from inflation and diversify your assets. However, it’s essential to plan. For most new investors, ETFs, FoFs, or SGBs are the best starting points. Advanced investors can look at MCX futures, but only if they know how risk and leverage work.
Whether you’re exploring various commodities or deciding which ones to invest in for 2024 or 2025, the key considerations are to maintain diversification, minimise costs, and manage risk.
STARTRADER and other platforms can help you on your way by giving you access to simple trading tools and accounts.
Tags
Open Live Account
Please enter a valid country
No results found
No results found
Please enter a valid email
Please enter a valid verification code
1. 8-16 characters + numbers (0-9) 2. blend of letters (A-Z, a-z) 3. special characters (e.g, !a#S%^&)
Please enter the correct format
Please tick the checkbox to proceed
Please tick the checkbox to proceed
Important Notice
STARTRADER does not accept any applications from Australian residents.
To comply with regulatory requirements, clicking the button will redirect you to the STARTRADER website operated by STARTRADER PRIME GLOBAL PTY LTD (ABN 65 156 005 668), an authorized Australian Financial Services Licence holder (AFSL no. 421210) regulated by the Australian Securities and Investments Commission.
CONTINUEImportant Notice for Residents of the United Arab Emirates
In alignment with local regulatory requirements, individuals residing in the United Arab Emirates are requested to proceed via our dedicated regional platform at startrader.ae, which is operated by STARTRADER Global Financial Consultation & Financial Analysis L.L.C.. This entity is licensed by the UAE Capital Market Authority (CMA) under License No. 20200000241, and is authorised to introduce financial services and promote financial products in the UAE.
Please click the "Continue" button below to be redirected.
CONTINUEError! Please try again.
