Commodity Index

An index that measures the price of a physical commodity or the price of the commodity as reflected in its futures contracts (derivatives trading) on a commodity exchange.

Every commodity index is different in terms of the no. of goods that it consists of. For ex:- the S&P GSCI index comprises 24 commodities that consist of commodities like agricultural products, precious metals, energy products, livestock products, and industrial metals.

They also differ on the basis of weights given to different commodities. The underlying asset is just one commodity or a combination, but they are not equal in weight. For ex:- Dow Jones Commodity Index Crude Oil, Bloomberg Platinum Subindex, etc. 

How does commodity index work?

The underlying commodity affects the price of the commodity index. Commodity indexes are a viable alternative for investors who don’t want to trade futures. When you invest in commodities indices, you don’t get returns like dividends or interest; instead, you benefit from the rise in value of the underlying commodity.

Recently, MCX launched a series of commodity indices called as MCX iCOMDEX Index.

An index which measures the price of a physical commodity or the price of the commodity as reflected in its futures contracts (derivatives trading) on a commodity exchange.