I have been actively trading in the stock market through my broker for the past few years. He recently suggested I should try investing in the commodities market. Do you think it is a good idea and, if yes, how far can my stock market trading experience aid me in commodities trading?
Investing in commodities can be a good idea from the asset allocation point of view. One can increase exposure to the inflation-hedge category of investments. While one has to be careful about the level of exposure to commodities vis-à-vis overall portfolio size, the exposure has to be at a meaningful level to unlock the benefits of commodity investing. For someone like you, familiar with markets and its inherent risks, an ideal way to invest here could be through commodity futures. You will not only get direct exposure to commodities but also benefit from transparent and fair price discovery. In fact, you can enhance your equity portfolio by investing in commodity futures.
I am considering a few company fixed deposit (FD) schemes, offering interest rates up to 12 per cent. However, there have been instances of companies defaulting in the past. Can you tell me some things I must bear in mind before investing in these?
Company FDs can be a good option for investors, as they offer a fixed rate of return. At the same time, they are free from the vagaries of markets. However, the key is to ensure the right balance between risk and reward. Hence, the selection should be done after a thorough due diligence.
Considering that company FDs are ‘unsecured’, one needs to look beyond the rate of return and also focus on factors such as credit rating and credibility. One important parameter could be its past payment history. Besides, considering that company FDs are illiquid and not as tax-efficient as debt and debt- oriented mutual funds, a combination of company FDs and these funds in a portfolio can provide the right mix, as well as improve post-tax returns. My wealth management company has approached me with options of investing in a real estate private equity fund. They have made a promise of high returns. Can you explain to me what a PE fund is? How do they work and what are the benefits of investing in them?
A private equity fund aims to achieve long-term capital appreciation by providing financial, strategic and operational assistance to investee companies. For example, a real estate PE fund may provide capital to real estate developers, as well as make investments at project levels. Though these funds provide an efficient way for investors to participate in the growth of the realty sector, considering their very high minimum investment criteria, closed-end structure and low level of liquidity, these are ideally suited to high net worth investors who can take higher risk to achieve higher returns and also have the capability of locking-in money for longer durations. Investing in the real estate sector is fraught with certain risks, as it is not only a fragmented industry but also faces issues such as lack of management, scale, track record and transparency. For retail investors, the ideal vehicle could be a real estate mutual fund (REMF). However, for that, they will have to wait till REMFs become a reality.
The writer is the CEO, Wiseinvest Advisors. Send your queries at yourmoney@bsmail.in