Summary
Copper ETFs offer investors an opportunity to invest in copper prices or copper mining companies without having to store the metal physically. These can add diversity to their investment portfolio due to long-term demand from electric cars, renewable energy and construction.
Investors in India do not have any dedicated copper ETFs trading on the NSE or the BSE at present. They can look into some eligible international copper ETFs through their overseas investment channel, or ETFs providing copper exposure.
There are risks associated with copper ETFs, including commodity, currency, tracking, and global economic risk. Copper ETFs should not be invested in only based on past performance.
With the increasing demand for copper driven by electric cars, renewable energy, power grids, construction, and data centres, copper appears to be a very interesting investment opportunity. If one is interested in investing in copper but does not wish to buy copper itself, the best way is to invest in copper ETFs.
But before investing in copper ETFs, Indian investors should know that there is no separate copper ETF available on Indian stock exchanges such as the NSE and the BSE. But investors can invest in ETFs providing copper exposure.
What is a Copper ETF?
A type of exchange-traded fund that provides exposure to copper prices and copper mining firms is called a Copper ETF. This ETF, as its name implies, is an exchange-traded fund, allowing it to be bought and sold on the stock market.
Copper ETFs can hold copper in various ways. Whereas some Copper ETFs track the price of copper via futures and other related instruments, others track the value of firms that mine copper. Therefore, two Copper ETFs can behave differently even though both are named Copper ETFs.
The former depends on the price of copper, whereas the latter depends not only on the price of copper but also on mining costs, firm profits, etc. Commodity ETFs can comprise physical commodities and derivative instruments such as futures and options.
Why are investors adding Copper ETFs to their portfolios?
Copper has a variety of industrial applications. The metal is used in the manufacture of electrical appliances, power transmission networks, buildings and structures, electric cars, renewable energy plants and data centres.
The global trend toward electrification has raised the profile of copper in investors eyes. Additionally, copper can act as a portfolio diversifier because its price determinants are quite distinct from those of equities and bonds.
Moreover, it is convenient to invest in copper using an ETF. Acquiring physical copper is not practical for many investors due to logistical issues. An ETF will give investors exposure to the metal without requiring them to handle it.
Hence, copper is a cyclical commodity whose price rises during periods of economic prosperity and falls during economic downturns.
How to Invest in a Copper ETF?
The following approach to investing in a copper ETF depends on whether one wants to invest in an international copper ETF or pursue a different path within India.
Step 1: Choose the Right Copper ETF Investment
Initially, one must determine how one wishes to invest. One could invest in a copper price ETF, which tracks the price of copper by investing in futures or any similar securities. One could also invest in a copper mining ETF, which tracks the share market of companies producing copper.
Depending on whether one is looking for exposure to copper prices or the mining industry, one must select accordingly.
Step 2: Open an International Investment Account
As there is no copper ETF available for domestic trading in India, investors seeking international copper ETFs will need to open an international investment account accessible to Indians.
You will typically be required to provide KYC documentation, submit your PAN, and submit other necessary documents.
Step 3: Familiarise Yourself With the LRS Guidelines
If you are a resident of India planning to invest internationally, you will have to factor in RBI’s Liberalised Remittance Scheme (also known as LRS). The relevant remittance restrictions need to be considered. Your investment firm or bank will be able to advise on the present procedure.
Step 4: Comparison of Copper ETFs
One should not choose a fund simply because copper prices have recently risen. One must consider the expense ratio, assets under management, trading volume, tracking record, fund structure, and nature of exposure.
International markets offer products such as the United States Copper Index Fund and copper-mining ETFs. Market listings currently have various copper ETFs with futures exposure and mining exposure.
Step 5: Moving Funds and Buying the ETF
Once all formalities are completed, transfer funds via authorised routes and purchase the desired ETF. Factors to consider before making the purchase include the trading currency, market timings, brokerage charges, conversion charges, and any other applicable fees.
Step 6: Tracking the Investment
Copper ETFs should not be considered investments to make, leave, and forget. Keep track of copper prices, global industrial demand for copper, currency movements, and the fund’s performance.
How to choose the right copper ETF
Choosing a copper ETF requires more than looking at past returns. Consider these factors:
| Factor | What to check |
| Fund objective | Does it track copper prices or mining companies |
| Expenses ratio | Lower costs can help over longer periods |
| Tracking difference | Check how closely the ETF follows its benchmark |
| Liquidity | Higher trading activity can make buying and selling easier |
| Fund size | Larger funds may offer better liquidity |
| Past performance | Use it for comparison, not as a return guarantee |
Can Indians invest in copper ETFs?
Yes, Indian citizens can invest in international copper ETFs through certain overseas investment channels. But there is no copper ETF listed in any Indian stock exchange, so one cannot invest directly in a domestic copper ETF via NSE or BSE demat accounts.
Yet another method would be to invest in shares of copper-based companies or in commodity derivatives available in India. The Multi Commodity Exchange of India (MCX) offers copper futures and options.
Risk of Investing in Copper ETFs
Before investing, it is important to understand the risks associated with Copper ETFs, as their returns can be affected by market volatility.
- Price risk of commodities: Copper prices can be highly volatile due to changes in global demand, supply disruptions, inventory levels, interest rates, and economic growth.
- Currency risk: Investors in India investing in foreign-based ETFs are at risk due to fluctuations between the foreign currency and the rupee. If the investment performs well in foreign currency, currency fluctuations can affect your performance in rupees.
- Tracking risk: There could be tracking risk related to copper prices, as futures contract prices may fluctuate, among other factors.
- Company risk of mining companies: Mining company ETFs have their own specific risks related to the operations of the companies, including labour problems, rising energy prices, political risks, operational issues, and falling profit margins.
Copper ETF investment example and practical scenario
Assume an example where an investor from India invests ₹50,000 in a foreign copper ETF.
If the foreign currency value increases by 15%, the investment amount will be roughly ₹57,500, assuming the exchange rate remains constant throughout the investment period and there are no taxes or transaction costs.
The returns in rupees will actually be higher or lower depending on the currency’s performance.
For example, when the foreign currency strengthens relative to the Indian rupee, there will be additional gains from the currency. If the rupee strengthens, then the returns in rupees will reduce.
Taxation of Copper ETFs in India
Investments can be made by investors in Copper ETFs in two ways: one is International Copper ETFs, and the second is ETFs providing copper exposure
- Taxation on International ETFs
It depends on the ETF’s holding period. The gains on ETFs are subject to capital gains tax; ETFs held longer than 24 months are considered long-term, and taxation is 12.5%, and those held for less than 24 months are short-term; it will be added to your total income and taxed at applicable slab rates
Dividend income is treated as part of your income under “Income from other sources” and taxed at the applicable tax slab, as per India’s double taxation avoidance agreement (DTAA); a tax credit can be claimed if tax is deducted in the foreign country
You need to convert dividend income into Indian rupees using the exchange rate on the last day of the month prior to the month you receive the dividend; this will be added to your total income and taxed at your slab rate.
- Taxation on Indian ETFs providing copper exposure
An ETF may provide exposure to copper by investing in India-listed copper or mining companies.
| Holding Period | Tax Treatment |
| Up to 12 months | Short-term capital gains taxed at 20% |
| More than 12 months | Long-term capital gains exceeding ₹1.25 lakh in a financial year are taxed at 12.5% |
| LTCG up to ₹1.25 lakh | Exempt, subject to applicable conditions |
Common mistakes to avoid when investing in Copper ETFs
Before investing in copper ETFs, investors should understand the risks and avoid mistakes that can reduce returns.
- One mistake is believing that all copper ETFs track the price of physical copper. Some ETFs hold mining company stocks, whereas others use futures contracts.
- Investing just because copper prices have been rising. Past performance does not predict future performance.
- New investors make the mistake of ignoring currency risk. An Indian investor holding an international ETF faces risks of two types of investments.
- High-frequency trading may also lead to increased costs such as brokerage fees, currency exchange costs, and taxes.
- Investing too much in a single commodity. Copper may provide some benefits as a diversification tool in a portfolio, but it should be used alongside other financial considerations.
Should you invest in copper ETFs?
Copper exchange-traded funds may work well for investors who are familiar with commodity markets and want to diversify their portfolios beyond more traditional investments. Additionally, copper exchange-traded funds may provide exposure to trends such as electrification, renewables, and infrastructure development.
But that doesn’t necessarily mean that copper is the core asset that every beginner investor should invest in. Copper prices may be volatile; there are concerns about international ETFs, and exposure to copper across various ETFs varies widely.
If you are a beginner investor, learn more about the product before allocating any significant amount of money into it.
Final Thoughts:
Copper ETFs are a convenient way for an investor to gain exposure to the copper investment theme without investing directly in copper. For now, an Indian investor would have to resort to ETFs or other investments not directly linked to India, since there are no dedicated copper ETFs in India.
In the process of making your choice, you should compare the pros and cons of the particular ETF structure.
FAQs
Indian investors can invest in copper ETFs eligible for international trading through platforms that allow overseas investing. One needs to fulfil the necessary KYC procedures, overseas remittance, and tax requirements. An alternative would be copper investments in India, but these differ from copper ETFs.
Copper ETFs may be an ideal choice for beginners who understand commodity risks and are looking to make only a small investment in copper. However, copper prices fluctuate greatly. Hence, it is necessary for beginners to understand how ETFs work and consider diversification.
Risks associated with copper ETFs include copper price volatility, currency exchange rate volatility, tracking errors, global economic slowdown and other fund-specific risks. There are also risks attached to mining ETFs.
Investing in copper over the long term could be supported by structural demand associated with electrification, infrastructure, and renewable energy investments. Long-term returns are never guaranteed, however. The commodity’s cyclical nature needs to be taken into account, and copper should be used as part of a portfolio.
Yes, you can invest a small amount as well if the chosen international investment platform and ETF allow it. There are also platforms that offer fractional investments, but availability may vary by country and platform.
