Commodities in Indian Portfolios to Play Bigger Role: Nippon India MF Vikram Dhawan

Commodities in Indian portfolios have historically been a small allocation compared to equity and debt, but that may be changing. Vikram Dhawan of Nippon India Mutual Fund made the case that commodities in Indian portfolios are likely to grow in importance as retail investors become more sophisticated about diversification and risk-adjusted returns. His view aligns with a global trend where institutional and retail investors are increasing commodity exposure as a hedge against inflation, currency depreciation, and equity market volatility.

The argument for commodities in Indian portfolios rests on the low correlation that commodities typically have with equity and debt returns. In periods of rising inflation, commodities like gold, silver, and energy tend to outperform while fixed income returns erode. For Indian investors who have traditionally held physical gold, the formalisation of commodity exposure through mutual funds and ETFs represents both an efficiency upgrade and a broadening of the investable universe for commodities in Indian portfolios.

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Why Are Commodities in Indian Portfolios Gaining Attention?

Diversification and Risk-Adjusted Returns

The primary argument for commodities in Indian portfolios, as articulated by Dhawan, is the diversification benefit. A portfolio including commodity exposure is less correlated with the Nifty 50 or bond markets, reducing overall volatility without necessarily sacrificing long-term returns. As retail investors in India become more educated about portfolio construction, demand for commodity fund products is likely to grow.

Inflation Hedge for Retail Investors

India's experience with periodic inflation spikes, particularly in food and energy prices, makes commodities in Indian portfolios especially relevant. Gold has consistently outperformed other asset classes during high-inflation periods. Formalising commodity exposure through gold ETFs, sovereign gold bonds, or multi-commodity funds allows investors to access this inflation hedge with greater liquidity and transparency than physical gold.

Global Risk Events and Safe-Haven Demand

Global risk events tend to drive demand for safe-haven commodities like gold and silver. Indian investors with commodity exposure in their portfolios have a natural buffer during periods of global market stress. This tail-risk protection is increasingly valued by sophisticated investors.

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How Can Indian Investors Build Commodity Exposure?

Instrument	Commodity	Key Advantage	Liquidity
Gold ETFs	Physical gold	No making charges; easy to trade	High (exchange traded)
Sovereign Gold Bonds	Gold + 2.5% interest	Tax benefit on maturity	Medium (OTC/secondary)
Multi-Commodity Funds	Gold, silver, energy	Managed diversification	High (daily NAV)
MCX Futures	Gold, silver, crude, agri	Direct price exposure, leverage	Very high (exchange traded)

What Dhawan's View Means for Commodities in Indian Portfolios Industry

Vikram Dhawan's comments come as the Indian mutual fund industry actively expands its commodity fund product range. SEBI has introduced regulatory changes making it easier for retail investors to access commodity markets through mutual funds, including silver ETFs and international commodity fund-of-funds. Growing AUM in gold ETFs and sovereign gold bonds validates the thesis that commodities in Indian portfolios are already gaining retail traction.

For asset management companies like Nippon India MF, growth in demand for commodity products represents a significant opportunity. The expansion of commodity products also diversifies the revenue base of fund houses beyond traditional equity and debt products, aligning with industry-wide efforts to deepen India's capital markets.

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Risks to Consider Before Investing in Commodity Products

Price volatility: Commodity prices can be highly volatile. Retail investors in commodities in Indian portfolios need to be prepared for periods of sharp price decline.

Currency risk: Many commodity prices are benchmarked in US dollars. Rupee appreciation can erode returns for Indian investors in global commodity funds.

No income generation: Most commodity investments generate no ongoing income, unlike equity dividends or bond coupons. Returns come entirely from price appreciation.

Regulatory changes: SEBI's commodity market regulations are evolving. Changes to fund structure rules could affect the viability of specific commodity products in Indian portfolios.

Conclusion

Commodities in Indian portfolios are set to play a bigger role as retail investors embrace asset allocation and diversification, according to Nippon India MF's Vikram Dhawan. The case for commodities in Indian portfolios rests on inflation hedging, low correlation with equity and debt, and tail-risk protection during global stress events. Investors exploring commodity exposure should consider gold ETFs, sovereign gold bonds, and multi-commodity funds as starting points. Consult a SEBI-registered financial advisor to determine the right commodity allocation for your portfolio.

FAQs on Commodities in Indian Portfolios

Why are commodities in Indian portfolios gaining attention?

Ans. Commodities in Indian portfolios are gaining attention because they provide diversification, inflation hedging, and low correlation with equity and debt. As retail investors focus more on risk-adjusted returns and asset allocation, demand for commodity exposure through mutual funds and ETFs is growing.

What did Vikram Dhawan say about commodities in Indian portfolios?

Ans. Nippon India MF's Vikram Dhawan said commodities in Indian portfolios could play a bigger role as asset allocation becomes more mainstream in India. He argued that as investors diversify beyond equity and debt and focus on risk-adjusted returns, commodities can become an established portfolio component.

How can I add commodities to my Indian portfolio?

Ans. You can add commodities in Indian portfolios through gold ETFs, sovereign gold bonds, multi-commodity mutual funds, MCX futures, or international commodity fund-of-funds. Each has different risk profiles, liquidity, and tax treatment. Consult a SEBI-registered advisor to choose the right instrument.

Are commodities a good investment for retail investors in India?

Ans. Commodities in Indian portfolios can provide diversification and inflation hedging. However, commodity prices are volatile and generate no regular income. They are generally suitable as a portfolio component, not as a standalone investment. Consult a SEBI-registered advisor before investing.

What is the best commodity for Indian portfolios?

Ans. Gold is the most commonly held commodity in Indian portfolios, acting as an inflation hedge and safe-haven asset. Silver, crude oil, and agricultural commodities offer different return and correlation profiles. The right commodity allocation depends on your goals, risk appetite, and overall portfolio.

What risks come with commodity investments in India?

Ans. Key risks include price volatility, currency risk for globally benchmarked commodities, absence of regular income, and potential regulatory changes by SEBI on commodity fund structures.

Which mutual funds offer commodity exposure in India?

Ans. Several AMCs including Nippon India MF, HDFC AMC, SBI MF, and ICICI Prudential offer gold ETFs, silver ETFs, and multi-commodity funds. Sovereign gold bonds are issued by the Government of India through RBI. Compare expense ratios, liquidity, and tax treatment before investing in commodities for Indian portfolios.