NISM Series XVI · Chapter 2: Commodity Indices

L1 · Foundation

Foundation — What an index is and how commodity indices differ

What an index does and why every index has a base value; total return versus excess return indices; why Indian commodity indices are built from nearby FUTURES prices rather than spot, and why that makes them total return indices; the global index providers and the major world commodity indices including BCOM, S&P GSCI and the LME Index; and the Indian composite and sectoral indices created after the SEBI circular of 18 June 2019.

20 min read · Worth 5% of the paper · Written from pages 33–46 of the official NISM workbook · Updated 17 September 2026

Commodity indices — what they are

1. What an index is

The examples the workbook gives: an INFLATION INDEX shows "the rise or decline in the prices of A BASKET OF GOODS OR SERVICES that are relevant to an economy or its consumers"; NIFTY, SENSEX and the COMPOSITE BOND INDEX show "the way MARKET VALUES OF THE UNDERLYING SECURITIES ARE MOVING."

In plain words: an index is a gauge. It shows which way a set of prices is moving.

In plain words: an index tracks a basket of items. It starts at a base value, usually 100 or 1000. Later values show how far the basket has moved since then.

Why they exist: ⚠️ "Indices are constructed TO CREATE A PROXY OF MARKET REPRESENTATION SO THAT THE INDEX RETURN COULD BE CONSIDERED AS THE MARKET RETURN."

⚠️ "A robust commodity index REPRESENTS GENERAL MARKET LEVELS of various commodities traded in that market and ACTS AS AN INDICATOR OF MARKET SENTIMENT for underlying commodities/segments listed there. For example, MCX BULLDEX REPRESENTS SENTIMENT IN PRECIOUS METALS MARKET."

In plain words: the index return stands in for the market's return. A good commodity index shows the general price level and mood of its market. MCX BULLDEX, for example, reflects the precious metals market.

1.1 Financial market indices versus inflation indices

"Compared with general indices SUCH AS CPI OR WPI that are computed TO MEASURE INFLATION at the consumer level or at the overall economy level, THE INDICES IN FINANCIAL MARKETS ARE CONSTRUCTED FOLLOWING A DIFFERENT SET OF RULES."

⚠️ "These involve RULES FOR ENTRY AND EXIT OF THE ASSET CLASS, RULES ABOUT HOW TO WEIGH THE ASSET CLASS. These rules are normally SET BY MARKET PLACE REGULATIONS and such regulations ARE KEPT TRANSPARENT to help market participants trading these indices FLAWLESSLY CALCULATE THESE INDICES ON A REAL-TIME BASIS to assist their trading strategies."

⚠️ "Further, these indices FOLLOW A DISCIPLINE OF PERIODICAL REVIEW OF THE CONSTITUENTS AND HENCE REBALANCING OF THE WEIGHTS."

In plain words: market indices follow clear, public rules. The rules say what goes in, what comes out and how much weight each item gets. Traders can then work out the index live. The members are reviewed from time to time, and the weights are reset.

What inflation indices are for instead: ⚠️ "Indices like INFLATION INDEX are used MORE LIKE INDICATORS OF ECONOMIC CONDITIONS... These indices help in GAUGING THE INFLATIONARY CONDITIONS IN THE ECONOMY and in taking APPROPRIATE MONETARY AND FISCAL DECISIONS TO CONTROL THE INFLATION, or to MANAGE MONEY SUPPLY FOR THE ORDERLY GROWTH OF THE ECONOMY."

In plain words: inflation indices like CPI and WPI are not built for trading. They show how prices are rising in the economy. Policy makers use them to control inflation and money supply.

2. Total return and excess return indices

"Traded indices can be grouped into TWO TYPES BASED ON THE PURPOSE OF USE."

In plain words: a total return index counts price change plus income, such as dividends or interest. An excess return index counts only the return above a benchmark or risk-free rate, and ignores income.

The distinction the workbook draws is about purpose: a total return index asks how did the whole holding perform; an excess return index asks how did it perform against a benchmark or risk-free rate.

3. Why Indian commodity indices are futures-based

⚠️ "FUTURE PRICES ARE GENERALLY HIGHER THAN THE SPOT PRICES DUE TO CARRYING COST PARITY."

In plain words: Indian commodity indices use prices of the nearest futures contracts, not spot prices. Futures are usually priced above spot because of the cost of carrying the goods.

3.1 Why that makes them total return indices

⚠️ "Therefore, commodity futures prices-based indices ARE TOTAL RETURN INDICES BECAUSE THEY INCORPORATE BOTH THE CAPITAL APPRECIATION OR DEPRECIATION OF THE UNDERLYING COMMODITY FUTURES CONTRACTS AND ANY INCOME GENERATED BY ROLLING THOSE CONTRACTS FORWARD."

In plain words: just before a futures contract expires, the index moves to the next one. The price gap between the old and new contract counts as income. Add the price change, and you get total return.

An equity index holds shares that pay dividends. A commodity futures index holds nothing that pays income — so its "income" is the roll yield, the gap between the expiring contract sold and the new one bought.

4. Index providers and the global indices

"Indices in global markets are computed and provided by A GROUP OF INTERMEDIARIES NAMELY INDEX PROVIDERS WHO DEVELOP METHODOLOGIES FOR CONSTRUCTING INDICES, SELECT THE COMPONENTS OF THE INDICES, AND CALCULATE THE VALUES OF THE INDICES."

In plain words: index providers design the method, pick the members and calculate the value.

⚠️ "Examples of prominent index providers include MSCI, S&P DOW JONES INDICES, FTSE RUSSELL, AND NASDAQ. IN ADDITION, AS IN INDIA, EXCHANGES ALSO SPECIALIZE IN INDEX DESIGN, CONSTRUCTION AND CALCULATION."

In plain words: MSCI, S&P Dow Jones, FTSE Russell and Nasdaq are big providers. In India, the exchanges build indices too.

The notable global commodity indices:

⚠️ BLOOMBERG COMMODITY INDEX (BCOM)
⚠️ S&P GSCI COMMODITY INDEX
DOW JONES – UBS COMMODITY INDEX
ROGERS INTERNATIONAL COMMODITY INDEX
MSCI COMMODITY INDEX
THOMSON REUTERS/CORE COMMODITY CRB INDEX
⚠️ LONDON METAL EXCHANGE INDEX

4.1 The three described in detail

BCOM: ⚠️ "FORMERLY KNOWN AS THE DJ-UBS COMMODITY INDEX, the Bloomberg Commodity Index is another major benchmark for commodity investors. IT COVERS A BROAD RANGE OF COMMODITIES, INCLUDING ENERGY, METALS, AND AGRICULTURAL PRODUCTS."

S&P GSCI: ⚠️ "FORMERLY THE GOLDMAN SACHS COMMODITY INDEX, is A TRADABLE INDEX TO MARKET PARTICIPANTS OF THE CHICAGO MERCANTILE EXCHANGE. The index was ORIGINALLY DEVELOPED IN 1991 BY GOLDMAN SACHS. IN 2007, ITS OWNERSHIP TRANSFERRED TO STANDARD & POOR'S, who currently own and publish it."

In plain words: BCOM was once the DJ-UBS index and covers energy, metals and farm goods. S&P GSCI was built by Goldman Sachs in 1991. S&P took it over in 2007.

LME Index: "A benchmark index that tracks THE OVERALL PERFORMANCE OF THE PRIMARY METALS TRADED ON THE LONDON METAL EXCHANGE... includes a basket of metals such as COPPER, ALUMINUM, LEAD, ZINC, NICKEL, AND TIN."

⚠️ Its weighting: "Weights of these metals are derived from AVERAGE GLOBAL PRODUCTION OVER LAST 5 YEARS AND AVERAGE TRADE LIQUIDITY OVER LAST 5 YEARS."

In plain words: the LME index covers six metals traded on the London Metal Exchange. Each metal's weight depends on its world output and its trading volume, both averaged over 5 years.

⚠️ Its distinctive method: "The index calculation methodology ENSURES THAT THE CURRENT MONTH FUTURES PRICES OF COMMODITIES DO NOT HAVE BIAS ON INDEX PRICE MOVEMENT. IT CONSIDERS FUTURES PRICE OF DIFFERENT EXPIRY MONTHS. This approach ensures that the index REFLECTS A BROADER RANGE OF PRICES ACROSS DIFFERENT DELIVERY PERIODS."

In plain words: the LME index does not lean only on the current month's price. It uses futures of several expiry months.

5. The Indian indices

"In Commodity Markets in India, there were EARLIER EFFORTS BY NCDEX AND MCX to create indices based on prices of either Futures market or Spot market."

In plain words: NCDEX and MCX had built indices before. SEBI's circular of 18 June 2019 set clear rules for futures-based indices that can have derivatives traded on them.

Type	Index	What it covers
⚠️ COMPOSITE	MCX iCOMDEX	"An Index of VARIOUS NON-AGRICULTURAL COMMODITIES. This includes various ENERGY, INDUSTRIAL METAL AND PRECIOUS METALS"
⚠️ SECTORAL	NCDEX GUAREX	"An index of ONLY GUAR FAMILY of agricultural produce"
⚠️ SECTORAL	MCX BULLDEX	"An Index of ONLY PRECIOUS METAL SEGMENT"
⚠️ SECTORAL	MCX METALDEX	Base metals

⚠️ "Above indices in India are BASED ON COMMODITY FUTURES PRICES and hence, THE CONCEPT OF TOTAL RETURN INDEX APPLIES TO THESE ALSO."

In plain words: iCOMDEX is a composite index of non-agri goods. The others cover one sector each. All are based on futures prices, so all are total return indices.

5.1 Who uses them, and for what

⚠️ "Market participants including INDIVIDUAL INVESTORS, PROFESSIONAL TRADERS, MANUFACTURING AND TRADING COMPANIES, FINANCIAL INSTITUTIONS SUCH AS HEDGE FUNDS, EXCHANGE TRADED FUNDS, TRADING MEMBERS AND MUTUAL FUNDS can use commodity indices EITHER AS A REFERENCE BENCHMARK FOR PERFORMANCE OF INDIAN COMMODITY MARKETS OR AS THE BASIS OF INVESTMENT PRODUCTS TO PROVIDE DIRECT EXPOSURE TO INDIAN COMMODITIES MARKETS."

In plain words: investors, traders, companies, funds and brokers all use these indices. They use them to measure the market, or as the base for products that invest in it.

Two distinct uses — a measuring stick and an investable product. The second is what index futures and index options make possible.

5.2 Where the underlying prices come from

⚠️ "Commodity indices have THE COMMODITY FUTURES AS ITS CONSTITUENTS. Commodity futures prices are generally based on THE SPOT PRICES OF THEIR UNDERLYING, WHICH ARE DETERMINED THROUGH SPOT POLLING PROCESS OR PRICE OF INTERNATIONALLY AVAILABLE UNDERLYING."

In plain words: index members are futures. Futures prices follow spot prices. Spot prices come from polling, or from international prices.

⚠️ "DISCLOSURE OF THESE UNDERLYING PRICES OR SPOT POLLING PRICES HELP IN COMMODITY FUTURES PRICES TO REMAIN ALIGNED, WHICH IN TURN IS ALSO AN INPUT TOWARDS WORKING OF COMMODITY INDEX AND TRADING OF INDEX FUTURES."

In plain words: publishing these spot prices keeps futures prices in line. That in turn keeps the index and index futures working properly.

There is a chain here worth seeing whole: spot polling → futures prices → index value → index futures price. A weakness anywhere in it travels upward.

Think of it like this

The thermometer that only reads temperature

A thermometer does not tell you whether to wear a sweater. It reports one number that summarises something too complicated to observe directly — the aggregate state of the air around it.

An index does the same for a market: ⚠️ AN INDEX IS A BAROMETER OF HOW THE PRICES OR VALUE OF CERTAIN PARAMETER OR COMMODITY IS MOVING.

The mechanism is deliberately simple. ⚠️ INDICES GENERALLY HAVE AN UNDERLYING BASKET/PORTFOLIO OF SECURITIES WHOSE PRICE MOVEMENTS ARE TRACKED AND SCALED DOWN TO A BASE VALUE OF INDEX. ALL THE INDICES HAVE A BASE VALUE, GENERALLY SET TO 100 OR 1000 AS ON THE START DATE.

The base value is arbitrary and that is the point — 1,000 means nothing in itself, but 1,120 next year means twelve percent.

And the purpose is representation: ⚠️ INDICES ARE CONSTRUCTED TO CREATE A PROXY OF MARKET REPRESENTATION SO THAT THE INDEX RETURN COULD BE CONSIDERED AS THE MARKET RETURN.

So MCX BULLDEX REPRESENTS SENTIMENT IN PRECIOUS METALS MARKET — one number standing in for the whole of gold and silver, exactly as the Nifty stands in for large-cap equity.

The tenant who moves house every month

Imagine renting a flat where the lease expires monthly and you must sign a new one each time. Your total cost is not just the rent — it is the rent plus whatever the new lease costs more or less than the old one. Move into a dearer flat each month and that difference is part of your bill; move into a cheaper one and it is a rebate.

A commodity futures index lives this way permanently, because futures contracts expire. ⚠️ COMMODITY INDICES IN INDIA ARE CONSTRUCTED FROM THE PRICES OF THE NEARBY FUTURES CONTRACTS OF THE COMMODITY CONSTITUENTS, INSTEAD OF THE UNDERLYING SPOT PRICES.

An equity index holds shares that simply keep existing and pay dividends. A commodity futures index holds nothing that pays anything — so where does its "income" come from?

⚠️ THE INCOME GENERATED IN THIS CASE COMES FROM THE DIFFERENCE BETWEEN THE PRICES OF THE EXPIRING FUTURES CONTRACTS AND THE PRICES OF THE NEW CONTRACTS PURCHASED TO MAINTAIN EXPOSURE.

That roll — the monthly change of lease — is why ⚠️ COMMODITY FUTURES PRICES-BASED INDICES ARE TOTAL RETURN INDICES: THEY INCORPORATE BOTH THE CAPITAL APPRECIATION OR DEPRECIATION AND ANY INCOME GENERATED BY ROLLING THOSE CONTRACTS FORWARD.

And because ⚠️ FUTURE PRICES ARE GENERALLY HIGHER THAN THE SPOT PRICES DUE TO CARRYING COST PARITY, the new lease is usually the dearer one.

A recipe with fixed proportions, not a shopping basket

A cook's recipe says two parts rice to one part dal — and it stays that way whether rice becomes dearer or cheaper. A shopping basket is different: if you always spend a fixed sum, the dearer item quietly occupies more of your budget.

This is exactly the difference between commodity and equity indices, and it is the single most examined point in the chapter.

⚠️ COMMODITY INDICES ARE PRICE-BASED INDICES AND NOT VOLUME-BASED INDICES. This means that ONCE WEIGHTS OF COMMODITIES ARE DETERMINED IN INDEX, THEN, INDEX WILL CAPTURE ONLY PRICE MOVEMENTS.

⚠️ EQUITY INDICES ARE VOLUME-BASED INDICES WHERE WEIGHTS OF UNDERLYING SECURITIES ALSO KEEP CHANGING DAILY DEPENDING UPON MARKET CAPITALIZATION. The workbook's own illustration: weight of Reliance Industries may move to 8% or 12% because of its price movement, since a rising price raises its market cap.

But: ⚠️ IN COMMODITY INDEX, GOLD WEIGHT IN MCX BULLDEX WILL CONTINUE TO BE AROUND 60% DAILY AS ITS WEIGHT IS KEPT CONSTANT AT 60% DURING 2025.

And a consequence follows that is genuinely useful: ⚠️ THUS, TO SOME EXTENT, COMMODITY-BASED INDICES MAY BE A PROXY OF INFLATION IN CERTAIN SECTORS. For example, if MCX METLDEX GOES UP BY 10% OVER ONE YEAR, SOMEWHERE IT INDICATES THAT INFLATION IN METAL FAMILY COMMODITIES IS NEARLY 10%. A fixed recipe measures price change cleanly; a shifting basket cannot.

Changing lanes gradually, not swerving

A driver changing lanes on a highway does it over several seconds. Swerving in one movement would work, technically, but everyone behind would feel it.

Index roll-over faces the same problem. Futures expire; the index must move its exposure to the next contract. Do it in one jump and the index value shows a blip caused by nothing that happened in any market.

⚠️ IN COMMODITY INDICES, ROLL OVER OF COMPONENT TO NEXT COMMODITY FUTURES ARE DONE CAREFULLY AND GRADUALLY SO THAT SUDDEN BLIPS DUE TO ROLL-OVER OR EXPIRY DO NOT DISTORT INDEX VALUE.

NCDEX spreads it over ⚠️ 3 DAYS, being the first 3 trading days of the month, shifting 1/3 on each day. So on day one the price change is a weighted average — 2/3 weight on the expiring contract, 1/3 on the next maturity — and the proportions march across over three days. MCX does roll-over in 2 DAYS, with 50% impact on each day.

Two further refinements show how much care goes into this: ⚠️ NORMALLY ROLL-OVER HAPPENS PRIOR TO START OF STAGGERED DELIVERY PERIOD IN UNDERLYING FUTURES, and ⚠️ ROLL-OVER ON SPECIAL DAYS LIKE MUHURAT TRADING DAY IS AVOIDED.

Equity indices never face this at all: ⚠️ IN EQUITY INDICES LIKE SENSEX AND NIFTY, CONTINUITY OF UNDERLYING STOCK IS MAINTAINED AS THOSE ARE BASED ON CASH MARKETS AND NOT ON FUTURES MARKETS. A share does not expire.

One rotten mango in a large basket

A fruit seller with a single crate of mangoes is ruined if that crate spoils. A seller with twenty crates of ten different fruits barely notices.

That is the diversification argument for index futures, and the workbook makes it concretely: ⚠️ ANY PRICE DISRUPTION IN ONE OR TWO COMMODITIES' FUTURES DOES NOT IMPACT THE TRADERS/HEDGERS WHO USE INDEX FUTURES FOR THEIR STRATEGIES.

Its example is precise: ⚠️ IF A COMMODITY FACES PRICE DISRUPTION WHERE FUTURES MAY ENTER INTO ABNORMALLY HIGH BACKWARDATION DUE TO TOO MUCH OVERSUPPLY OR DUE TO QUALITY ISSUES IN WAREHOUSE, THEN INDEX VALUE AND ITS FUTURE PRICES MAY NOT BE IMPACTED SIGNIFICANTLY.

The gold case is subtler. ⚠️ HOUSEHOLDS MAY PREFER TO HOLD GOLD IN PHYSICAL FORM RATHER THAN HAVE POSITION THROUGH GOLD FUTURES OR BULLION INDEX — a convenience yield attached to the spot market. THOUGH GOLD FUTURES MAY ENTER INTO BACKWARDATION IN THIS SITUATION, OVERALL INDEX FUTURE PRICE MAY NOT, DUE TO THE DIVERSIFIED REPRESENTATION.

And the general mechanism: ⚠️ GIVEN THAT VARIOUS COMMODITIES OR SEGMENTS HAVE VARIOUS DEMAND AND SUPPLY FACTORS, PRICE MOVEMENTS IN ONE SEGMENT MAY BE CUSHIONED BY THE OPPOSITE PRICE MOVEMENT IN ANOTHER — the extent SUBJECT TO THE WEIGHTAGES.

The same property that protects is what disappoints the day trader: cushioning is another word for less movement.

The dull cricket pitch nobody wants to bat on

A pitch where the ball never misbehaves produces safe, low-scoring cricket. Batsmen who want quick runs go elsewhere — and once they do, the crowd thins too.

Commodity index derivatives in India have exactly this problem, and the workbook is candid about all three of its parts.

⚠️ VOLATILITY: SINCE COMMODITY INDEXES ARE BUILT IN THE FORM OF A BASKET OF MULTIPLE COMMODITIES, MOST OF THE TIMES, VOLATILITY GETS REDUCED SIGNIFICANTLY DUE TO LAW OF AVERAGES. So ⚠️ INTRADAY TRADERS SELDOM OPT FOR COMMODITY INDEX OVER INDIVIDUAL COMMODITY CONTRACTS, RESULTING IN LOWER LIQUIDITY.

⚠️ LIQUIDITY: commodity indexes ARE NOT AS POPULARLY TRADED AS INDIVIDUAL COMMODITIES — and hedgers cannot fill the gap because ⚠️ THEY DO NEED COUNTER PARTIES FOR EXECUTING THEIR HEDGE TRADES. A circular problem: no speculators, so no liquidity; no liquidity, so no hedgers.

There is a structural reason equity indices escape this: ⚠️ THE PARTICIPANT NEEDS TO FOCUS ONLY ON 8-10 INDIVIDUAL COMMODITY CONTRACTS COMPARED TO 100's OF EQUITY INDIVIDUAL SCRIP LINKED DERIVATIVE CONTRACTS. Nobody needs an index to summarise eight things.

⚠️ LIMITED AWARENESS: TRADERS PREFER CONTRACTS THAT ARE EASY TO UNDERSTAND; INDEXES HAVE THE COMPLEXITY LINKED TO BASKET COMPOSITION, WEIGHTAGE, CORRELATION, REBALANCING.

The product is not defective. Its defining virtue — averaging away single-commodity shocks — is precisely what makes it unattractive to the traders who supply liquidity.

Key terms in this chapter

12-month and 90 percent test: The eligibility test for a constituent — its futures contract must have existed for at least the last 12 months and must have traded on at least 90 percent of the trading days in those 12 months.
15 percent cap: A commodity that fails the ADTV liquidity test is not thrown out — its individual weight is simply capped at 15 percent, so that illiquid names together cannot exceed 20 percent of the index.
25:75 rule: Production score and liquidity score must be in a 25:75 ratio, meaning neither factor may carry less than 25 percent weight. It is a floor on each, not a fixed split. MCX currently uses 25 percent production and 75 percent liquidity.
ADTV (Average Daily Trading Volume): The average value traded each day. For a composite index on which derivatives trade, at least 80 percent of index weight must be futures with ADTV of Rs 75 crore or more for agri commodities and Rs 500 crore or more for non-agri commodities.
AGRIDEX: NCDEX's composite agricultural index of ten commodities led by Chana at 20 percent. Its calculation and display were discontinued from 1 February 2022 after trading in many constituents ended for regulatory reasons.
Backwardation: A market where futures prices are below spot, usually because holding the physical article carries a benefit of its own. A single commodity can fall into backwardation without the diversified index following it.
Base value: The number an index is set to on its start date — generally 100 or 1000. If a commodity index started at 1000 and now reads 1250, the basket is 25 percent costlier than on the start date.
BULLDEX: MCX's bullion sectoral index. For 2025, Gold 60.119248 percent and Silver 39.880752 percent — gold can exceed 30 percent only because sectoral indices are exempt from the composite cap.
Composite index: An index containing commodities from more than one sector — for example MCX iCOMDEX Composite with crude oil, gold, silver and natural gas together. Each constituent must carry between 1 and 30 percent weight.
Contango: A market where futures prices are higher than spot, reflecting carrying cost. Rolling a long position forward in contango costs money — but if the new contract keeps rising, the roll can still generate an excess return.
Contrary instruction: An instruction from an option buyer not to exercise. Without it, every in-the-money index option is exercised automatically on expiry; out-of-the-money options simply expire worthless.
Convenience yield: The benefit of owning the physical commodity rather than a futures or index position — households preferring gold as jewellery, a factory preferring stock it can use tomorrow. It is what can push a futures price below spot.
CPMI-IOSCO: The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions — international bodies that bring regulators together to set standards for market infrastructure. Commodity index risk management must follow their principles.
Daily Price Limit (DPL): The circuit breaker on a day's price movement. The index futures DPL is generally equal to or higher than the DPLs of its constituent futures, because index-level demand and supply can move the index futures further than the constituents alone would.
European-style option: An option exercisable only on expiry, not before. All commodity index options are European style, cash-settled, with a minimum of three strikes available.
Excess return index: An index that measures performance above a benchmark or the risk-free rate, without counting income separately.
Exchange Traded Fund (ETF): A listed, open-ended packaged portfolio whose units can be created as demand grows. Gold ETFs are now permitted to invest in gold futures as well as physical gold, and silver ETFs in silver derivatives.
Final Settlement Price (FSP): Determined after 5:00 pm on expiry day from the weighted average traded price of the constituent futures between 4:00 pm and 5:00 pm. The difference between the previous day's DSP and the FSP is settled in cash the next morning.
GUAREX: NCDEX's sectoral index on the guar family — Guar Seeds 59.35 percent and Guar Gum 40.65 percent.
Index: A single number that represents the combined price movement of a basket of items. It has a base value (usually 100 or 1000) on a start date, and every later value tells you how much the basket has moved since then.
Law of averages: The reason index volatility is lower than single-commodity volatility — gains in one constituent offset falls in another. Good for hedgers, but it makes indices less attractive to intraday traders and so limits liquidity.
Liquidity value: The other scoring factor — the average trading volume of the commodity's futures over the last 12 months.
Lot size of index futures: Fixed at a value of at least Rs 5 lakh on the launch date and on each rebalancing date — with a base of 1000 that means 500 units. Between rebalancings the number of units stays constant, so the rupee value of a lot floats.
Maximum tenor: An index futures contract may not run longer than 12 months. Contracts may be launched for 1, 2, 6 or 12 months.
METALDEX: MCX's base metal sectoral index — for 2025, Copper 40 percent, Aluminium 30 percent, Zinc 26 percent and Lead 4 percent. A 10 percent rise in it broadly suggests 10 percent inflation in the metals family.
Monsoon proxy: An agricultural index used as an approximate bet on rainfall. Buying index futures bets on a deficit monsoon, because short supply lifts prices; short selling bets on a good monsoon.
MPOR (Margin Period of Risk): The number of days for which settlement risk must be covered by margin. For commodity index futures and options it must be at least two days, against one day in equity cash markets, and it can be increased during uncertain periods.
Muhurat trading day: The special Diwali trading session. Index roll-over is deliberately avoided on this day.
Price-based index: An index whose weights stay fixed for the year, so the index level moves only when constituent prices move. All commodity indices work this way.
Production value: One of the two scores used to set weights — the average value of deliverable supply over the past five financial years, where deliverable supply in a year is production plus import in that year.
Rebalancing: Reviewing and resetting the constituents and their weights. Required at least once a year — NCDEX and MCX use the January-to-December calendar year — and also in extraordinary situations such as a ban or suspension of trading in a constituent.
Roll-over: Shifting the index's exposure from an expiring futures contract to the next month's contract. Done gradually — NCDEX over three days at one-third each, MCX over two days at 50 percent each — so that expiry does not create a false jump in the index.
Roll yield: The gain or loss created purely by moving from an expiring contract into the next one. In the workbook's example, rolling 100 bullion contracts from Rs 16,000 to Rs 16,100 against a Rs 50 carry cost, then seeing convergence to Rs 16,150, produced Rs 5,000 of excess return.
Sectoral index: An index containing commodities of only one family — bullion, base metals, energy or guar. The 1-to-30 percent weight cap does not apply, which is why gold can hold 60 percent of BULLDEX.
Short Option Minimum Margin (SOMM): One of the margins a clearing corporation imposes on the seller of an index option, alongside initial, concentration, additional adhoc, ELM and pre-expiry margins. Because index options are cash-settled, no rolling or delivery period margin applies.
Spread trade: A paired order such as a calendar spread or crush margin spread, where a buy and a sell are executed together on different contracts and one leg depends on the other. These prices are ignored when computing an index because they are not bonafide single-side trades.
Staggered delivery period: The window before final expiry during which delivery can be tendered in a commodity futures contract. Index roll-over is normally completed before this period begins.
Three-month disclosure rule: A rebalanced index must be disclosed at least three months before the date on which index values start being published using the new weights, so users can prepare.
Tick size: The smallest permitted price movement in an index futures contract — typically Rs 0.25, though it can vary by exchange.
Total return index: An index that counts both the price change and the income earned. Indian commodity futures indices are total return indices because their "income" is the roll — the gain or loss on moving from the expiring contract into the next one.
VaR (Value at Risk): The maximum volatility expected 99 percent of the time over the MPOR. This figure becomes the initial margin. In general VaR is a market risk measure computed at 95 to 99.90 percent confidence.
Volume-based index: An index whose weights shift daily with market capitalisation, so a share that rises automatically gains weight. Equity indices such as Sensex and Nifty work this way; commodity indices do not.

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Original explanatory writing based on the official NISM workbook for Series XVI, which is published and copyrighted by NISM. Check figures against the current edition at nism.ac.in.

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