Commodity Mutual Funds

Commodity mutual funds are investment vehicles that allow individuals to gain exposure to commodities such as oil, gold, and agriculture products. These funds pool money from various investors to invest in a diversified portfolio of commodity-related assets. Investing in commodity mutual funds can be a suitable option for those looking to diversify their portfolio and gain exposure to the commodities market.
  • Commodity mutual funds provide a way for investors to participate in the potential price movements of commodities without directly owning the physical assets.
  • They offer diversification benefits by investing across different commodities and sectors within the commodity industry.
  • Commodity mutual funds can be a hedge against inflation and provide a potential source of returns during times of economic uncertainty.

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Best Commodity Mutual Funds 2024

Returns

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Mutual Fund Schemes
NAV
5Y Returns
AUM(in Cr.)
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62.12May 17, 2024
17%
₹4,058
21.56May 21, 2024
16%
₹74
21.56May 21, 2024
16%
₹74
24.07May 21, 2024
13%
₹374
24.10May 21, 2024
13%
₹374
30.65May 21, 2024
13%
₹1,601
30.65May 21, 2024
13%
₹1,601
30.65May 21, 2024
13%
₹1,601
6780.54May 21, 2024
13%
₹112
22.26May 21, 2024
13%
₹374
22.23May 21, 2024
13%
₹374
23.19May 21, 2024
13%
₹1,512
23.15May 21, 2024
13%
₹1,512
23.15May 21, 2024
13%
₹1,512
6565.88May 21, 2024
13%
₹98
62.79May 21, 2024
13%
₹801
65.32May 17, 2024
13%
₹679

Commodity Mutual Funds?

As the name suggests, commodity mutual funds allocate the assets of their clientele in the commodity market. The commodity market entails trading products such as gold, petroleum, coffee, etc., where they are transacted with respect to their demand, supply, and commercial value. Such trading of commodities takes place both domestically and internationally. Providing the investors with an avenue to profit from the volatility in the commodity market. The commodity market globally has been finding its relevance ever since worldwide inflation has severely affected the prices of such commodities.

A commodity mutual fund invests the assets in commodities to earn handsome profits if the commodity performs well in the market. The funds specifically invest in a single commodity and aim to book handsome returns on their investments from the fluctuations in the prices of these commodities. As the investments made in the commodity markets are prone to market volatility, the investor must have a firm grasp on the intricacies and functioning of prices of commodities with respect to various external factors.

Commodity Mutual Funds Types

The commodity mutual funds in India are segmented into diverse categories. These funds are transacted worldwide, and this categorization aids in streamlining and facilitating the transactions.

Basic or True Commodity Funds

The investments in such commodity mutual funds are allocated towards physical assets. In India, investment in basic commodities generally concerns with metals. It is to be noted that funds utilise a pooled corpus to directly invest and profit from the fluctuating prices of these commodities.

Natural Resource Funds

The natural resource funds invest in businesses that primarily facilitate their operations in natural resources like oil, petroleum, solar energy, minerals, and gold. The performance of these funds is subject to the price of the commodities on which the business operations are centred.

Future Funds

The future funds take positions in the future trading of the commodities. It is to be noted that an investment in the future options of the commodities can be risky as such investments are prone to aggressive fluctuations in the market. It has been identified that the NAV of these funds is subject to consistent volatility.

Combination Funds

The combination funds divide the invested corpus between future options and basic commodities. These combination funds allow the investor to balance future options' volatility with basic commodity investing.

Index Funds

The index funds invest in commodities with the strategy to mirror the indexes based on the standard benchmark rates.

Benefits of Commodity Mutual Funds

The commodity mutual fund can prove to be a lucrative investment scheme for investors as it offers the following benefits to the investors:

Inflation

The commodity mutual fund is one of the few investment options that allow investors to book profit on inflation. Commodity mutual funds hedge against inflation as the rise in prices of the commodities further accentuates the portfolio of the investors.

Diversification

The investor who has allocated a percentage of their funds in a commodity mutual fund aids the investor in diversifying their portfolio. It allows the investor to book profits even in unforeseen events, and the market's direction is not very optimistic.

Safeguard Against Market Volatility

The commodities and the equity market share an inversely proportional relationship. An increase in the prices of the commodities would generally signal a fall in the prices of the equities and vice versa. If an investor has allocated their fund to both, it will safeguard them from the volatility of these investment products.

Less Volatility

The market volatility in the commodity mutual fund is far lesser than in the equities. The commodities are far less prone to fluctuations, and the market generally moves slower. They are only affected when there has been a geopolitical development.

Who Should Invest in Commodity Mutual Funds?

Investors inclined to invest in commodity mutual funds should understand the external and internal factors that affect market conditions. The investor should evaluate the current market trends and how these developments would influence the price of the commodities so that they can earn lucrative returns against their investments.

As the returns are not fixed and are subject to fluctuations in the market, the investor must thoroughly asses and analyse the market conditions and risks involved in making the investments. It is advised that first-time investor who wants to invest in the commodity market should park their funds with commodity mutual funds. Fund managers can utilise their expertise and experience to provide lucrative returns to investors. An individual investor with no time or resources to compute the effect of geopolitical developments on the commodities market would often find themselves in a perplexing situation.

How are Commodities Traded in the Market?

The commodity mutual fund in India is transacted on officially registered commodity trading exchanges. Four major trading exchanges in India provide a platform for investors to facilitate trade on commodities.

  • Multi Commodity Exchange (MCX): is one of the largest commodities derivative exchanges in the country. The exchange is regulated by the Ministry of Finance, Government of India.
  • National Commodity and Derivatives Exchange (NCDEX): a technology-driven exchange platform operated nationwide to transform India's agricultural sector.
  • Indian Commodity Exchange (ICEX): The Indian Commodity Exchange is a commodity exchange that specifically offers diamond contracts. This exchange is regulated by the Securities and Exchange Board of India (SEBI). It merged with the National Multi-commodity Exchange in 2017.
  • National Multi-Commodity Exchange (NMCEX): After its merger with the ICEX, this platform is the third-largest trading platform that offers contracts to trade commodities such as oil, seeds, coffee, rubber, spices, and other products.

Factors to Consider Before Investing in Commodity Mutual Funds

Investors inclined to park their investment in commodity mutual funds must evaluate the following factors before making their decision.

  • The prices of commodities are prone to change due to major developments in various economic and geopolitical factors. For example, when a change in the geopolitical of two countries can affect the prices of the commodities that are transacted between them.
  • There is a certain amount of risk involved when investors park their funds in the commodity market, as the returns are not guaranteed. However, the market volatility is minimal when compared to equities.
  • Commodities-Focused Stock Funds employ future contracts to follow underlying commodities and commodity indexes. It is to be noted that trading on such assets can be speculative and is subject to consistent volatility.
  • The energy sector makes up the majority of the commodity indexes. A commodity mutual fund's performance can determine the performance of the commodities concerned with energy.

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Frequently Asked Questions

Are Commodity mutual funds a good investment option?

The commodity mutual funds allow investors to park their funds in the commodities market. Commodity trading allows investors to hedge against inflations and book handsome profits.

What is the difference between Hybrid funds and Commodity mutual funds?

The commodity mutual funds invest in the commodities market, whereas the hybrid funds invest in the mix of debt and equity markets.

How do I start investing in a Commodity mutual fund?

The investor who is inclined to invest in this lucrative investment instrument is required to make required to establish a trading account with a broker so that they can facilitate their trades from their Demat account.

Is it good to invest in a Commodity mutual fund?

The commodity mutual fund allows the investor to earn handsome returns and balance their portfolio as the commodity market shares an inversely proportional relationship with the equities.

Are Commodity mutual funds high risk?

The commodity mutual fund does not guarantee assured returns and is subject to market risk. However, they are less volatile when compared to the equity market.

Which is the best Commodity Mutual fund?

Aditya Birla Sun Life Commodities Equity Fund – Regular Plan – Global Agri Plan – Growth has provided handsome returns to its investors.

Which type of Commodity mutual fund is best?

The investor should select the mutual fund type based on their investment objectives and park their investment in the fund that aligns with their goals after a thorough assessment.

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