Features of Commodity Mutual Funds
1. Diversification: Commodity Mutual funds give you a mixed character for your portfolio. AMC’s which manages Commodity Mutual funds invest in different commodities which creates scope for diversification for investor, as they can experience the positive returns of different commodities while staying invested in a single commodity mutual fund.
2. Mitigation of Risks: Commodity Mutual Funds are secure as they mitigate the risk that is potentially present in investing directly in commodities, as commodity mutual funds invest in different commodities in different ratios which overcomes the risk factor.
3. Constant Income and Growth Rate: Commodity Mutual funds provide a constant income stream as any financial malfunctioning in one commodity class will not affect other classes of commodities, and there will be a continuous growth rate for the portfolio of investor.
4. Non-Biased: Comparing to general human tendency one can be biased over particular commodity, but Commodity Mutual funds employs experts and fund managers who manages these funds in order to use there expertise to provide better wealth maximisation to investors by using investing techniques and risk balancing techniques which eliminates the biasness towards any particular class of commodity.
5. Volatility: Commodity Mutual Funds tends to be volatile as commodities are very prone to price fluctuations. Also, as per the guidelines by SEBI a fund is required to invest 95% of total proceeds in commodities in order to be called as Commodity Mutual Fund. However, AMC’s try to adjust the price fluctuations by investing residual amount among other asset category.
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