Get Personalised Funds by Experts
5X Faster Returns To Reach your Financial Goals Sooner!
Click here for personalised MFWhat is Commodities Mutual Fund?
Commodities have been traded for monetary units for a long time. In the initial days of trade and commerce commodities were exchanged for commodities itself. It is the oldest means of trade and commerce and is still practised on the commodity trading exchange in India. To simplify the commodity trading, mutual fund AMCs provide commodity mutual funds which use commodities to garner gainful returns for the investors. The commodities are exchanged with monetary units in order to generate profit in commodity mutual funds.
Free KYC Check
To know your eligibility for Mutual Fund InvestmentGold & Silver Funds
Explore Other Asset Class
Find The Best
Commodities
A commodity is a raw material which has an economic value that has been either extracted from earth or available in natural raw form. It is an asset which has been traded for money or different commodities for many centuries in India. Due to many reasons like foreign invasions, natural calamities, government policies etc, commodity trading practices have declined. However, even in the present day, directly or indirectly, every individual plays a part in commodity trade.
Commodities exist in their natural form and no extra value can be added or removed by the producer. However, the quality of the raw material can be different for every commodity but these are generally priced equally. Commodities are mainly divided into two subcategories depending on the method which has been used to extract the raw material.
Commodities in India are traded on the officially registered commodity trading exchanges. There are six major commodity trading exchanges in India, namely:
In India, investment in commodities is done through futures and options. A future contract is an agreement to buy or sell any specific quantity of the commodity at a fixed price at a predefined time and date in future. An option is a contract between a buyer and seller in which the buyer buys the right to buy or sell the shares of a stock or commodity at a predetermined price within a fixed period of time. Trading in options can be risky and inconvenient for laymen. This is where the commodity mutual funds are advantageous.
A commodity fund is a mutual fund where a fund manager handles the investment in the commodities. Based on how the chosen commodity performs in the market, the returns are generated to the investors. Investing in a commodity fund is much better than investing in the commodities directly as the fund manager who handles the investment of the fund is a professional and has the experience to deal with the commodities. Majority of the asset management companies in India have launched commodity funds which trade only with gold as gold acts as a hedge against inflation and is highly appreciated in India.
The performance of commodity mutual funds is directly dependent on the performance of the commodities in which the fund manager is investing the pooled corpus. If the price of the commodity increases and the profits are booked by the fund manager by investing at the right time, the gain is divided equally among each unit owned by the investors. Any fluctuations in the price of the commodity directly affect the NAV of the commodity fund. There are different risks and benefits of investing in commodity mutual funds.
Commodity funds have various sub-categories depending on the investment strategies and investment objective.
In India, gold is not only treated as a metal commodity for investment but is also worn as an ornament. Most of the Indian families have been buying gold and passing it on to their next generation as a treasure or property. However, incidents of gold theft and snatching are quite common. Apart from this, buying physical gold has a risk of depreciation in the value due to making charges and the purity can also depreciate over time.
To avoid these risks and limitations on gold investment, the investments can be done in a much safer and more beneficial manner through gold commodity mutual funds which are commonly known as gold ETF (Exchange Traded Funds). Investments in gold through Gold ETF can be a much convenient, safe and profitable for the investors. The buying and selling in Gold ETFs have no extra charges and gold can be bought with the periodic investment of amount as low as Rs 500 every month.
Investing in the commodity mutual funds requires an understanding of the products and material where the fund is investing. As the commodity market can be highly influenced by the market conditions, the investors must equip themselves with the functioning trends of the commodity markets to make a better decision. These funds are highly subject to market fluctuations and hence do not ensure fixed or guaranteed returns. The investors must be careful of the risks associated and understand the functioning of the commodity mutual funds comprehensively. New investors should take the assistance of an expert for a better investment experience, the commodity funds must be chosen by those who have their investment objective in line with that of the fund.
For a layman, it could be perplexing to analyse the behaviour of commodities and the effects on commodity due to any geopolitical event. To enjoy a fruitful investment experience, take the assistance of financial experts at MySIPonline who have the professional expertise to examine the trends of the commodity in the present as well as future market conditions. The experts can give a unique solution to achieve a certain financial objective for every investor.
Mutual Fund Experts
Frequently Asked Questions