What are Commodity Mutual Funds?

What are Commodity Mutual Funds?

Commodity Mutual Funds are described as a type of fund that primarily invests in commodities and offers returns to investors based on the market performance of the commodity chosen by the AMC or fund manager. Commodity funds are those funds that invest in pure raw materials or primary agricultural products, known as commodities. These funds invest in precious metals like gold and silver, energy resources such as oil, natural gas, etc., and agricultural goods like rice, sugarcane, etc. Basically, there are two types of commodities that are traded, Agricultural Commodities and Non-Agricultural Commodities. Commodity funds also invest in the companies that are engaged in the production of these commodities; along with this, these funds also invest in commodity futures and options, and some commodity funds also invest in the stocks of companies, like gold funds, which invest in the stocks of companies engaged in gold mining. Some of the examples of commodity mutual funds are:...

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....

Types of Commodity Mutual Funds

Commodity Mutual Funds can be categorised into the following categories:...

Who Should Invest in Commodity Mutual Funds?

1. Investors who want to Stay Associated with the Commodity Market: Trading in commodities is complex as it involves a high degree of market research on the underlying commodity and the market trend, as well as time to educate oneself. Those who do not have the time to learn such skills might use commodities funds, which are normally run by competent fund managers and experts....

Advantages of Commodity Mutual Funds

1. Allows Diversification: Commodity mutual funds invest in different classes of commodities, which allows investors to diversify their portfolios across different classes of commodities. Commodities and commodity stocks provide returns that differ from other stocks as compared to a portfolio with assets in a single line, which can help you better manage market volatility. However, diversification of portfolios does not ensure a guarantee of profits, as returns depend on market forces....

Disadvantages of Commodity Mutual Funds

1. High Volatility: Subject matter for commodity mutual funds is commodity and they are prone to market fluctuations. Commodities like Oil, gold are highly volatile and any major price swings or fluctuations could have material impact on the portfolio....

Risks Associated with Commodity Mutual Funds

Although there are several benefits associated with commodity mutual funds, due to their price fluctuation, the following risks can be identified while investing in commodity mutual funds:...