About Precious Metals Mutual Funds

Diversification, or spreading your risk among a variety of different investment options, may be the best advice any broker ever gave. Americans have responded by pouring huge sums of money into mutual funds both for personal savings and in Individual Retirement Accounts and 401(k)'s. But with the recent volatility of the stock market, some investors are turning to gold and precious metals as a hedge against the uncertainties of the future. Precious Metals Mutual Funds can help investors participate in this traditional safe haven and still diversify their investment.

Function

Like all mutual funds, the primary function of a Precious Metals Mutual Fund is to provide individual and corporate investors with professional management of their funds. These mutual funds are designed to invest in a variety of investment products that relate to the precious metals industry and may include stocks of precious metals mining companies, direct ownership of bullion or precious stones and minerals such as diamonds, and cash or cash equivalents.

Types

The objectives of Precious Metals Mutual Funds, which are wide and varied are governed by their prospectuses. Some funds seek long-term capital appreciation of assets. Others seek to protect the purchasing power of your capital against inflation. Still others pursue aggressive short time capital gains. Whatever their objective, Precious Metals Mutual Funds are considered among the most volatile of all mutual funds. In the investment pyramid they are generally placed in the "Speculative" category.

Features

Mutual funds that have a precious metals objective outlined in their prospectus may be defined as a Precious Metals Mutual Fund. These funds typically invest in gold bullion, mining stocks, silver, platinum, diamonds and less exotic base metals such as tin, iron or copper. They may also invest in the securities of companies that are indirectly involved with the precious metals industry such as fabricators, distributors, and retailers. There is a significant risk to these types of mutual funds in part because many of the companies involved in exploration and mining of gold and precious metals are small and most are located in less stable regions outside the United States.

Benefits

Gold and other precious metals have typically been considered a safe harbor in times of economic turmoil. While some investors prefer to own bullion or loose diamonds, few have the resources to purchase, store and safeguard such commodities. Precious Metals Mutual Funds offer the added benefits of diversification of assets, professional management of funds, liquidity of the underlying security, and lower initial investment amounts. Because precious metals can act as a hedge against inflation most investors could benefit from having a small percentage of their total investment dollars committed to Precious Metals Mutual Funds.

Warning

All mutual funds charge fees for a variety of services including management fees. Funds with experienced management may charge slightly higher fees. Investors should carefully read the prospectus to determine if they are comfortable with the all sales charges, fund expenses, and other fees that will be assessed. Although they do provide the benefit of diversification Precious Metals Mutual Funds typically invest in equity and debt instruments of an extremely volatile sector of the economy. Wide swings in gains and losses are typical. Mutual funds are rarely insured and investors may lose some or all of their investment.

Resources

• List of Precious Metals Mutual Funds
• Return on Investment from selected Precious Metal Mutual Funds