Investments are necessary to achieve your financial goals and secure your financial future. There are several investment options you can opt for to accomplish this purpose. Investing in financial markets is a suitable choice if your goal is to earn inflation-beating returns. Equity and Commodity Markets are two financial markets you can consider investing in. Many confuse the two markets as they work on a similar concept.
However, Equity and Commodity Markets are significantly different. Let us understand the difference between Equity and Commodities Market.
Market offering
Commodity Markets allow you to invest and trade commodities. These commodities can belong to the agricultural or non-agricultural categories. They are listed and traded directly on the market. Under an Equity Market, you invest in the shares of a particular company. You can easily invest and trade shares listed on the stock exchange. You need a Demat Account to operate in both markets. Open a Demat Account and start your investment journey.
Investment holder
As an investor, when you invest in the Commodity Market, you are called an Options holder. With Commodity Investment, you directly invest in a commodity, not a company. Hence, you do not hold any ownership of the company. As an Equity Market investor, you called the shareholder. When you invest in company shares, you hold part ownership in the invested company. Given this status, you receive voting rights and contribute to the company’s decisions.
Associated risk
Both Equity and Commodity Investments involve some risk. You need to have a high-risk appetite to invest in both markets. The investment returns from Commodity Investments depend on the commodity you have invested in. For example, if your choice of commodity is wheat, your investment returns rise with the wheat price hike. This often proves beneficial during inflation. The commodity prices rise too.
However, be mindful when investing in the Commodity Market. Things can go out of hand if you are not cautious during deflation. A similar advice applies to Equity Investments. Markets are unpredictable. Every investment choice you make significantly impacts your risk and returns.
Dividend
This is another differentiating factor between Equity and Commodity Trading. Dividend is a return that you receive when the company makes profits. Equity Investments offer Dividends, but Commodity Markets do not. This is because the latter’s returns are not linked to any company.
Scope of diversification
Commodity Trading offers a better scope of diversification than Equities. The price change of one commodity does not impact other commodities. Since Commodity Markets are diverse, you can compensate for a setback better. This lets you secure your market positioning. However, with an Equity Investment, if the value of one share takes a hit, other shares may also experience market volatility.
