Facts on Commodity Mutual Funds

A mutual fund is a type of professionally managed investment that uses money pooled from many individuals. Commodity mutual funds use a portion on this pooled money to invest in commodities, typically in the form of commodities futures. Commodities are actual deliverable goods, typically raw materials or agricultural products, such as hogs, wheat, iron, timber, gold, crude oil, soybeans, sugar, coffee beans, silver, iron ore and rice.

Function

Commodity mutual funds are an added option for some investment portfolios that provide investors with the opportunity to invest in commodities while limiting the overall risk of investment.

Types

The exact distribution of the investment within the commodities mutual fund differs according to the investment company managing the mutual fund.

Features

Commodities mutual funds are typically traded in commodities futures contracts which are sold prior to expiration so that no actual goods are received.

Considerations

Because commodities are consumables, their prices are linked closely with inflation and the current cost of living--as inflation rises so does the price of commodities.

Benefits

Having commodities in a portfolio has the potential to protect against times of inflation, since the price of most stocks decreases and the cost of commodities increases during inflation.