What are Commodities?

Commodities are things that people buy and sell. They are finished products as well as basic raw materials. Any tangible thing that is bought and sold can be considered a commodity. Securities, the shares of ownership of a company (common stock) and the debt obligations of companies, municipalities, and the federal government and its agencies (bonds), have traditionally been traded and regulated separately from commodities. However futures contracts have arisen on things that historically haven’t been considered as commodities, such as foreign currencies and stock indexes etc., Commodities has taken on and will continue on significantly broader dimensions.

Where are commodities traded?

Everywhere people buy and sell things. Some commodities are traded on a commodity exchange. In the United States and in most industrialized countries, commodity exchanges deal mainly in contracts for future delivery. A retail outlet, such as a grocery or department store, is not a commodity exchange because, while there are many buyers. There is only one seller, and prices are not subject to negotiable. In the United States, all contracts traded on a commodity exchange must be approved for trading by the Commodity Futures Trading Commission (CFTC), a government agency that regulates commodity futures trading.

What is a Commodity Futures Contract?

A commodity futures contract is a contract for a commodity that will be delivered at sometime in the future. It is not contract for current delivery. For example if someone buys 125,000 Swiss francs for immediate delivery, he is not entering in to a contract for future delivery. If he buys a contract of Swiss francs for delivery in three months, he is purchasing a futures contract. The buyer may choose to sell the contract prior to delivery on the appropriate date. Similarly, the seller of the contract may purchase the contract prior to delivery (thus closing out his position), or may deliver on the delivery date.

What Economic Purchase Does a Commodity Exchange Serve?

Commodity exchange enables individuals and institutions to transfer the risks of ownership of commodities onto a class of individuals known as speculators, who are willing to assume these risks. These local traders, who operate on the trading floor and trade for their own accounts, are doing just that. Nonmember traders who trade for themselves are also speculators expect, as nonmembers, they are not allowed on the trading floor.That is basically what the yelling and screaming on a trading floor is all about, individuals and institutions transferring risks back and forth among one another.If a wheat farmer, for example, wants to protect the price of his wheat crop that is due in three months, he will go into the futures market and sell short to protect his profit. If a cereal manufacturer wants to lock in the price of wheat three months in the future ,it will buy  futures contracts for delivery in the three months: and the local traders and outside speculators’ provide the liquidity that enables both the famer  and the cereal manufacturer to transfer the risks of their operations on to others. Let’s take another example. Assume that an importer is expecting a shipment of cuckoo clocks from Germany and must make payment in six months. Since the price of the German mark (Deutsche mark or D-mark) is subject to fluctuation, the importer can purchase a futures contract of marks for delivery in six months. This will enable him to avoid the uncertainty of not knowing what his plans accordinglyIf the importer purchases marks for future delivery and the price rises, he will have avoided playing the higher price because his price was locked in the moment he purchased his contract. But you may ask: What if the price of marks falls? Wouldn’t the importer have been better off if he had waited? The answer, of course, if yes, he would have been, but he didn’t want to take the risk. He preferred to pass the risk on to speculators, who were willing to assume it.

How Can I Sell Something That I Don’t Own?

Let’s assume that you are the owner of a bookstore and a customer asks to purchase a book that is not in stock. You tell the customer that you will order the book for him if he will put up a deposit of 10 percent as earnest money, and that the book will arrive in ten days. The customer gives you the deposit, and you order the book. This is a type of contract for future delivery. You have sold something that you don’t own, but expect to receive in ten days. In the language of commodity trading, you are considered to be “short” and the customer is considered to be “Long”.When the book arrives in your shop, you deliver the book to satisfy your obligation to the customer and he pays the balance owed. You have made delivery and received payment, and he has taken delivery and made payment.All this was made possible because the contract was for future, not present delivery. Once you understand this concept, you will be well on your way to understanding everything there is to know about commodity futures trading.

What Types of Commodities Are Traded on a Commodity Exchange?

The following are the examples of commodities that are traded on different exchanges Metals:  Gold, Silver, Platinum, Copper, Aluminum.Energy: Crude oil, heating oil, gasoline, natural gas, propane gas.Agricultural: Frozen orange juice, coffee, sugar, cocoa, corn, wheat, oats, rye, canola, live hogs, broiler chickens, lumber, butter, rice.Interest Rates: Eurodollars, Treasury Bills, Treasury bonds, Treasury notes, LIBOR (London Interbank Offered Rate)Stock Indexes: Major Market Index, Standard & Poor’s 500 Stock Index, Nikkei 225 Stock Average, Value Line Stock Index.Foreign Currencies: British pounds, Canadian dollars, Australian dollars,Deustche marks, Swiss francs, Japanese yen.

Different Commodity Exchanges

Americas

Asia

Europe

Oceania

Reaching untouched heights step by step, inflation has again jumped a big step to 11.05 per cent for the week ending on June 7 after an 8.75 per cent in the preceding week. Fuel price rise announced on June 4 pushed the inflation rate to this 13-year high level. Earlier, a high inflation of 11.11 per cent was witnessed on May 6, 1995.

Chidambaram revealed that he had warned the Union Cabinet on the effect fuel price rise would have on inflation but it could not be avoided. A visibly concerned FM said, “These are difficult times. Government is aware of people’s difficulties, but fuel price hike was unavoidable.”

He said, “Inflation is high. RBI must take steps and it has taken.”

Sensitive BSE index of stock markets slipped about 350 points as soon as the data is released. The dipping of 350 points reflects the nervousness of the investors about the efficacy of the measures being taken by the Finance Ministry and the Reserve Bank of India.

Leading economists and analysts predicted that food price rise would prompt the Reserve Bank of India to further tighten the monetary policy, possibly by making short term lending to banks costlier.

This could further lead to increase in interest rates for cars, homes and consumer finance, economists said and feared that present situation could also force a hike in lending rates for the industry and many banks are already contemplating hiking the prime lending rate.

“The high inflation may force the RBI to increase the repo rate (short term lending rate to banks) by up to half a percent,” Principal Economist of rating agency CRISIL D K Joshi said.

He further stressed that unless fuel prices are controlled the prices would be a major challenge.

The previous high in the UPA regime was 8.33 percent, as per the provisional figure for the week ended August 28, 2004.

Somi Conveyor Beltings IPO is all set to hit the capital markets on June 24th, 2008. Somi Conveyor Beltings IPO price band has fixed at Rs 35 per equity share with over 62 lakh equity shares of Rs. 10 each under offering. The issue closes for subscription on June 27, 2008.

Somi Conveyor Beltingsissue comprises of contribution by promoters, of 14,99,286 equity shares of Rs 10 each at a price of Rs 35 per equity share for cash aggregating to Rs 5.25 crores, and the net issue to the public of 47,28,574 equity shares of Rs 10 each at a price of Rs 35 per equity share for cash aggregating to Rs 16.55 crores including an allocation of at least 10% of the net issue to the public to Qualified Institutional Buyers. The net issue to public would constitute 40% of the fully diluted post issue paid up capital of the company. The issue price is 3.5 times of the face value of the equity share.

Ashika Capital is the Book Running lead manager to the Somi Conveyor IPO shares and Mondkar Computers is the Registrar to the issue. Post IPO the shares are proposed to be listed on the BSE.

For more information and updates on Somi Conveyor Beltings IPO Subscription and Allotment details do visit us back.

Portfolio is grouping of financial assets such as stocks, bonds and cash equivalents, as well as their mutual, exchange-traded and closed-fund counterparts.

Portfolios are held directly by investors and/or managed by financial professionals.

Forethought suggests that investors should construct an investment portfolio in accordance with risk tolerance and investing objectives. Think of an investment portfolio as a pie that is divided into into pieces of varying sizes representing a variety of asset classes and/or types of investments to accomplish an appropriate risk-return portfolio allocation.

A conservative investor might favor a portfolio with large cap value stocks, broad-based market index funds, investment-grade bonds and a position in liquid, high-grade cash equivalents. In contrast, a risk loving investor might add some small cap growth stocks to an aggressive, large cap growth stock position, assume some high-yield bond exposure, and look to real estate, international, and alternative investment opportunities for his or her portfolio.
 

Rules for a profitable investment portfolio
 

Asset allocation – the way you divide your capital among different investment options – accounts for more than 90 per cent of your portfolio’s overall return. Which is why it’s so very important to get the asset allocation right in your investment portfolio.

The portfolio’s the thing

Get used to the fact that, at any one time, a few parts of your portfolio will be doing terribly. Over a long enough time period, each and every component will have had a bad year or two. This is normal asset-class behaviour and cannot be avoided. So, focus on the performance of the portfolio as a whole, not the individual parts.

In asset allocation, job one is to pick an appropriate stock / bond mix

This is determined primarily by your risk tolerance. Do not bite off more risk than you can chew – a classic beginner’s mistake. Calmly and coolly planning for a market downturn is quite different from actually living through one, in the same way that crashing a flight simulator is different from crashing a real airplane. Time horizon is also important. Do not invest any money in stocks that you will need in less than five years, and do not invest more than half unless you will not need the money for at least a decade.

Allocate your stocks widely among many different asset classes

Your biggest exposure should be to the broad domestic stock market. Use small stocks, foreign stocks, and real estate investment trusts (REITs) in smaller amounts.

It makes a difference where you put things

Some asset classes, such as large foreign and domestic stocks, and domestic small stocks, are available in tax-efficient vehicles; put these in your taxable accounts. Other asset classes, particularly value stocks, REITs, and junk bonds, are highly tax-inefficient. Put these only in your tax-sheltered retirement accounts.

Don’t rebalance your portfolio too often

The benefit of rebalancing back to your policy allocation is that it forces you to sell high and buy low. Asset classes tend to trend up or down for up to a few years. Give this process a chance to work; you should not rebalance more often than once per year.

These rules apply to tax-sheltered accounts. In taxable accounts, rebalance only with outflows, inflows, and mandatory distributions; here, the rebalancing benefit is usually outweighed by the tax consequences.

The recent past is out to get you

Human beings tend to be most impressed with what has happened in the past several years and wrongly assume that it will continue forever. It never does. The fact that large U.S. growth stocks performed extremely well in the late 1990s does not make it more likely that this will continue; in fact, it makes it slightly less likely. The performance of different kinds of stocks and bonds is best evaluated only over the long haul.

If you want to be entertained, take up sky diving

Investors like to have fashionable portfolios, invested in the era’s most exciting technologies. Resist the temptation. There is an inverse correlation between an investment’s entertainment value and its expected return; IPOs, on average, have low returns, and boring stocks tend to reward the most.

An asset allocation that maximizes your chances of getting rich also maximizes your chances of becoming poor

Your best chance of making yourself fabulously wealthy through investing is to buy a few small stocks with good growth possibilities; you just might find the next Microsoft. Of course, it is far more likely that you will lose most of your money this way. On the other hand, although you cannot achieve extremely high returns with a diversified portfolio, it is the best way to avoid a retirement diet of cat food.

There is nothing new in investing

Knowledge of financial history is the most potent weapon in the investor’s armamentarium. Since the dawn of stock broking in the seventeenth century, every generation has experienced its own version of tech bust. The recent dot-com catastrophe was just one more act in finance’s longest running comedy. Be able to say to yourself, ‘I’ve seen this movie before, and I think I know how it ends.’ The only thing that’s new is the history you haven’t read.

A portfolio of 15 to 30 stocks does not provide adequate diversification

The myth that it does results from a misinterpretation of modern financial theory. While it is true that a 30-stock portfolio has no more short-term volatility than the market, there is more to risk than day-to-day fluctuations. The real risk is not that short-term volatility will be too high, but that long-term return will be too low. The only way of minimizing this risk is to own thousands of stocks in many nations. Or a few index funds.

Japan Securities Depository Center, Inc. (JASDEC) of Tokyo has signed a Memorandum of Understanding (MOU) with National Securities Depository Limited (NSDL), designed to build a cooperative relationship.

Under the terms of the MOU, JASDEC and NSDL will establish a mechanism, whereby board members, senior management and staff of both sides could meet on a regular basis to explore improvement opportunities and to exchange information on business operating models and securities market developments.

The MOU also noted that “the parties anticipate developing a closer working relationship in the future and wish to maintain channels of communication for exchange of information and to promote visits for reasons of friendship and other business purposes.”

“I hope that the signing of MOU between NSDL and JASDEC will bring enormous benefit to the two central securities depositories.” said Mr. Yoshinobu Takeuchi, President & CEO of JASDEC. He expressed his hope that NSDL and JASDEC will be able to further strengthen their relationship and make contributions to the development of the securities market in the two countries.

Mr. Gagan Rai, MD & CEO of NSDL, commented: “The depth and breadth of JASDEC’s experience in both domestic and cross-border transactions is of interest to NSDL and our clients. We place great value in developing a cooperative relationship to further the growth and prosperity of our respective markets.”

About JASDEC

Japan Securities Depository Center, Inc. (JASDEC) provides the securities depository and book-entry transfer services for stocks, convertible bonds, REITs and other securities, and the book-entry transfer services for commercial papers, corporate bonds, investment trusts, and ETFs. As of March 2008, the number of participants for stock certificate settlement stood at 286 and the number of shares held amounted to 320 billion. In addition, JASDEC operates a DVP settlement service for non-exchange transactions through its subsidiary.For more information on JASDEC, visit www.jasdec.com.

Investor Accounts  Active with PAN) : 83,07,341
 
DP Service Centres :7,460
 
Demat Custody Value : 43,79,813 Rs. crore (US$ 1,024 billion)

The Securities and Exchange Board of India (SEBI) passed the first batch of consent orders against 12 accused in the initial public offer (IPO) demat scam.

The regulator said that the 12 applicants in the consent orders were allegedly financiers in the cases related to irregularities in IPOs. A consent order is an agreement between a regulator and the accused, in which a case is settled with a penalty.

The scam related to certain entities cornering IPO shares in 2003-05, reserved for the retail category by using fictitious demat accounts. These demat accounts were ultimately transferred to the financiers through key operators. The financiers made their gains on the first day of listing of these shares.

The applicants have remitted Rs 7.17 million towards the terms of consent in the matter. This amount includes Rs 5.97 million towards refund of the alleged ill-gotten gains and Rs 1.2 million towards settlement charges.

The accused against whom the consent orders have been passed are Neha Narendra Dadia, Dhaval Narendra Dadia, Kiran Dadia, Jasmina J Dadia, Sonal S Dadia, Narendra Harilal Dadia, Jayesh N Dadia, Kashmira Narendra Dadia, Deepak N Dadia Natvarlal N Dadia, Pratik Pulp (P) and Dadia Finvest.

To ensure faster access to its customers, two state-owned banks—State Bank of India and Union Bank of India—are planning to launch mobile banking services by June end. Other full-banking services that will be offered include account-to-account money transfer, mobile payments, and account-status enquiry.  

UBI join hands with Emkay
Union Bank of India has signed a memorandum of understanding with stock-broking company Emkay Share and Stock Brokers to offer online trading services to its customers. To gain access to this facility, bank customers need to have a demat account with UBI and a trading account with Emkay

Investors often confuse ETFs with conventional mutual funds. However, the fact is that they are different on several counts. Perhaps, the only similarity between ETFs and conventional mutual funds is that they both provide investors an opportunity to invest in an assortment of stocks/instruments through a single avenue.

First, an investor in a mutual fund needs to buy and sell units from the fund house. In case of an ETF, the transaction has to be routed through a broker as buying and selling is done on the stock exchange. In the rare case that an investor can buy or redeem units in an ETF through the fund house, it is normally done in a pre-defined lot size. Typically, the lot size tends to be substantial making it feasible only for institutional investors and high networth individuals (HNIs).

Since ETFs are traded on the stock exchange, they can be bought and sold at any time during market hours like a stock. This is known as ‘real time pricing’ as ETF investors can transact at the price prevailing at that point in time.
This is in contrast to mutual funds, wherein units can be bought and redeemed only at the relevant NAV; the NAV is declared only once at the end of the day. As a result, ETF investors have the opportunity to make the most of intra-day volatility. Of course, this may hold little significance for long-term investors.

ETFs are associated with low expenses vis-à-vis mutual funds. For example, a passively managed ETF which tracks a benchmark index  would have an annual recurring expense in the range of 0.44 per cent-0.50 per cent, while it would be around 1.00 per cent-1.25 per cent in case of an index fund tracking the same benchmark index. Unlike mutual funds wherein entry or exit loads can vary between 2.00 per cent-2.25 per cent, ETF investors do not have to bear any loads. Instead they have to pay a brokerage while transacting.

 While brokerage rates vary across brokers, a brokerage of around 0.50 per cent, on each transaction in the Indian context can be regarded as being on the higher side. However, ETF investors must have a demat account, this in turn entails paying an annual maintenance charge (which can be about Rs 300). Since ETF investors often invest in stocks as well, the maintenance charge of the demat account can be apportioned on both the stock and ETF investments.

ETFs safeguard the interests of long-term investors. The reason being that since all the buying and selling of units is done on the exchange, the fund house doesn’t enter the picture. Investors directly interact with other investors over the exchange. This in turn ensures that the fund manager’s hand is never forced due to the buying or selling activity.

In case of mutual funds, the possibility of a substantial redemption adversely affecting the fund cannot be ruled out. For example, the fund manager might be forced to sell his best investments prematurely to meet the redemption pressure. This in turn could have a negative impact on the long-term investors’ interests.

While mutual funds are always available at end-of-day NAV, ETFs do not necessarily trade at the NAV of their underlying portfolio. Rather, the market price of an ETF is determined by the demand and supply of its units (which in a close-ended ETF is fixed), which in turn is driven by the value of its underlying portfolio. Therefore, the possibility of an ETF trading below (at a discount) or above (at a premium) its NAV does exist.

Clearly, despite their seemingly similar structures, ETFs and mutual funds are distinct on several fronts.
As always, investors should take into account their risk appetite and investment objectives, among a host of other factors; and consult their investment advisors/financial planners to determine the suitability of ETFs in their portfolios

Avon Weighing Systems IPO is all set to hit the capital markets on June 9th, 2008 . Avon Weighing Systems IPO will issue over 1.3 crore equity shares of Rs 10 each at par .

Avon is the authorised distributors of Tanita and A&D weighing systems in India since 1999. The company also provides consultancy to various industrial houses, on the latest weighing systems and applications and is focused on software to enhance the applications of weighing scales.

Avon Weighing Systems IPO funds are proposed to be used for expansion plans which include setting up of facility for manufacturing of a range of weighing systems, and to open four showrooms in the Metros.

Avon Weighing Systems IPO Grading has been done by CARE. The IPO has been assigned “IPO Grade 2” which indicates below average fundamentals of the IPO.

Avon Weighing Systems IPO Subscription closes on June 12, 2008 and the equity shares are proposed to be listed on BSE.

Keynote Corporate Services Limited is the Lead Manager of Avon Weighing Systems IPO and Datamatics Financial Services Limited is the Registrar to Avon Weighing Systems IPO.