If you are planning to invest, there is one option that would most likely have skipped your attention, and that is agriculture. Although the term usually connotes the idea of farmlands alone, but there is more to it than meets the eye. This industry refers not only to cultivation of crops but also their packaging, distribution and manufacturing of farm equipment etc.

Agriculture sector presents huge investment opportunities. Agreed that present condition of the Indian agrarian sector seems gloomy but you must not forget that it is still the single largest contributor to the country's GDP, employing over 50% of the population. If you are interested in pitching your money in this sector but clueless about which agriculture-related funds to opt for, worry not! This article can help you make the right choice.

Points to consider

To make the right investment decision, you first need to ask certain questions. Which asset class you wish to deal in? Is your strategy for the long term or short term? How much of liquidity do you require? These are some questions that must be answered before you think ahead. You must carefully understand the opportunities within this sector and compare your investment strategy with them to judge the profitability.

Evaluate your risk tolerance

For every investor it is crucial to know his/ her ability to deal with major market swings. For this you can use freely available online risk calculators. Most of the tools are present in the form of questionnaires, and based on your inputs, they estimate your ability to deal with price fluctuations.

Research thoroughly and know your options

Fully exploit the internet resources at your disposal and look for investment options focused on agriculture. Check out various online mutual fund screeners, from where you can compile a list of funds having the highest proportion of assets invested in this sector. Besides mutual funds, you can also look at the options of commodity or agriculture ETFs and farmland funds. These types of agricultural funds have been discussed hereunder.

Mutual Funds: This is one of the best options for small investors as the minimum investment requirements are usually low and offer good liquidity. Furthermore, the funds are mostly handled by experienced fund managers. However, a limitation of mutual funds is that they are directly related to the performance of financial markets and not so much to the global economic scenario.

Commodities & Agriculture ETFs: These Exchange-Traded Funds seek to capitalize from the rising prices of commodities. Within this type, one can actually own and trade in physical commodities or invest in agricultural futures. But it must be noted that the commodities market is highly volatile. Those looking for more liquidity, agriculture EFTs, i.e. trading in stocks instead of commodities would be a better option.

Farmland Funds: The option of investing in farmlands is best suited for those with long term plans. This asset is very much likely to offer major capital gains in the future as the demand for food increases and the area of cultivated land goes down. However, this option should be taken up by big investors who can bear the expensive and illiquid nature of farmlands.

There are many ways in which you can invest in agriculture sector, and all the options have their own unique set of characteristics. You must be aware of your own potential for investment, the amount of risk you can afford and what you want the investment to deliver. Owing to the increase in investment from the government's end, the agriculture industry is expected to grow in the coming years. With the right choice of funds, you would be able to reap the benefits of this progress.