Commodity Mutual Funds
Some exchange traded funds own the physical quantity of the commodity they represent. For example, funds like shares SLV have the same physical quantity of the silver that they have in papers.
Some funds do not own the physical commodity. Instead they own the futures contracts. They fix the strategies in such a way that the price of the fund gives the value of the underlying asset. Apart from futures contracts, they also hold short term credit instruments and US treasury units for earning income to meet their expenses.
Some funds invest in stocks of the underlying companies i.e. gold mining companies or steel mills. They don’t own the physical assets, but instead the stock of the companies.
Indices for Commodities Mutual Funds- GSCI – Goldman Sachs Commodity Index
- DJCI – Dow Jones Commodity Index
GSCI has around 22 commodities ranging from oil to cooking fuel oil. In this about 55% is made up by energy futures and another 25% by agriculture commodities.
DJCI is a liquid index with worldwide importance of commodities.
How commodity mutual funds operate?The fund managers invest money half or one third of their assets in Future Contracts. These contracts are made for a future date and price obliged by the buyers and sellers. These contracts will be traded on the exchanges and values based on speculation and hedging. Some future contracts are delivery based i.e. the commodities has to be delivered and some contracts are cash based where the buyer or seller settle cash on the expiry of the contract.
Best Commodity Mutual Fund / Index Funds
Some of the best commodity mutual funds / index funds which has performed well in the past are
- PIMCO Commodity Real Return Strategy
- Goldman Sachs Commodities Index
- Deutsche Bank Liquid Commodities Index
- Rogers International Commodities Index
- Dow Jones AIG Commodities Index
Relationship between Commodities and Inflation
Commodities are very closely related in determining most of the economic factors and inflation. Most of the commodities used are consumable by humans and are consumed quickly which affects the prices of the commodities. As the demand for the commodities increases, price of the commodity also increases, which acts as a major factor for inflation.
Disclaimer:
“Mutual Funds and securities investments are subject to market risks and there is no assurance or guarantee that the objectives of the Scheme will be achieved. Please read the Statement of Additional Information and Scheme Information Document carefully before investing”.
“In Mutual Funds, the past performance is not guaranteed in future”.
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