You as an investor should make yourself well acquainted with the working of an MLP. The reason MLPs exist is to distribute all available cash back to the MLP unit holders. As said, this has to be done on a quarterly basis. Knowing this fact can make you more aware before making your final investment decision in an MLP. The following factors are considered before determining the amount of cash distributed to each individual investor:

1) How many units you hold as an MLP investor. 2) The incentive distribution rights created for the GP. 3) The difference between the total cash flow and the cash flow ploughed back into the MLP for futures growth.

Now there are many always to go about doing commodity investing. First you need to determine the hottest commodity in the market like crude oil or gold. Then you need to search for an investment vehicle that can give you the best return. You must do your due diligence while making your investment decisions. There are always pros and cons of each investment vehicle! So once you decide to invest in commodities, you have many investment options like mutual funds, stocks, ETFs as well as MLPs.

So investing in an MLP is just like investing in stocks. Investing in MLPs is quite simple. Since an MLP is a publicly traded entity. You can simply invest in an MLP by calling your broker and telling him or her how many units of a particular MLP you are interested in buying.

There are not many MLPs registered in US. Something like 50 MLPs is being publicly traded in the United States. Out of these 50, 40 are energy MLPs meaning that they are involved in the storage terminals, pipelines, transportation, refining and distribution. Majority of MLPs trade on NYSE with a few trading on NASDAQ and AMEX! So you don’t have to do your research from a long list of MLPs. MLP sector is growing.

You only need to remember this 90% of the income that comes to an MLP should come from the production and distribution of commodities for these MLPs to have the tax exempt status. Moreover, investing in pipelines and other energy infrastructure offers steady cash flow streams for an MLP.

So when you invest in an MLP, you should look for answers to the following questions: 1) What’s the historical payout of the MLP? 2) How much is the cash flow? And so on. If your brokerage firm has published some research on the MLPs, you can reference that.

Don’t forget there is always some risk involved in any investment. The more return you demand, the more risk you will have to take. Now investing in MLPs do come with some risks like most of the infrastructure is like pipelines and drilling rigs that are vulnerable to natural disasters and earth quakes like the Hurricane Katrina, so any such event can have a negative impact on your investment.

There is another risk related with the management. You don’t have much say in the management of the MLP. Running an MLP is basically a GP show. If you are not satisfied with the performance of the management or its policies only thing that you can do is to withdraw your investment from that MLP. Since the MLP is fairly small at this moment, there can be liquidity issues in withdrawing your investment from an MLP. These are some of the risk that you can face while investing in an MLP.

Mr. Ahmad Hassam has done Masters from Harvard University. Trade trading/2009/09/dow-futures/"> Dow Futures . Learn trading/2009/10/commodity-trading/"> Commodity Trading !

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