Advantages of Commodity Mutual Funds

Commodity mutual funds are different from traditional mutual funds, which invest in equity markets and bond markets whereas commodity mutual funds invest in commodities which may be range from agro commodities like wheat, rice to commodities like crude, gold etc…. Here are some of the advantages of investing in commodity mutual funds –

1. As an asset class commodities acts as good diversification strategy for people holding equities and bonds in their portfolios, because commodities tend to have negative correlation to bonds and equities that is when they rise they fall and vice versa.

2. It acts as a hedge against the rising inflation, because during inflation stock markets as well as bonds tend to perform badly while commodity tends to rise and therefore commodity mutual funds are a better bet during inflationary conditions.

3. Since an individual investor will find it difficult to trade or invest directly in commodities market, these type of mutual fund which are managed by experts is perfect for people looking to invest in commodities market.

However before investing in commodity mutual funds, one must look into the past performance of the fund in which he or she is investing and also one must be aware of the huge volatility which is present in commodities in present global environment. To begin with the best strategy would to invest only 5 to 10 percent of your portfolio in such mutual funds so that one is not faced with too much risk of losing his or her money.

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