Commodities Made Simple with Commodity Mutual Funds

Commodity mutual funds are a recent type of funds, with the first commodity mutual funds launching  in 2004.

Commodities mutual funds are similar to close ended mutual funds in that they can be traded on the exchange market. However, commodities have much higher returns, and higher risks.

Commodities mutual funds invest in, what else, commodities. Typical commodities invested include gold, silver, currency, and oil. Traditionally, only savvy and experienced investors with a lot of money to back up their shares have been able to invest in these commodities. But with commodities mutual funds, the possibility of investing in commodities is more realistic for many more investors.

The first commodity mutual fund, launched in 2004, deals with shares in gold commodities. Within the first few weeks the commodity mutual fund was worth $1.5 billion in assets. This number may seem large, but it is actually representative of the numbers to be expected when tracking commodities. Other companies have and are planning to jump onto the commodity mutual funds bandwagon, tracking commodities such as the Euro, silver, crops, and oil.

Minimum investments in these commodity mutual funds is also likely to be quite high, allowing only experienced investors the financial ability to invest. Risk with commodity mutual funds is much higher than other types of funds, due to the very nature of the shares. Commodities can be affected by global economy, natural disasters, and military actions. Therefore, it can often be difficult to sell shares before you lose a substantial amount of money, often over night.

It is important to note, however, that like the securities in close ended mutual funds commodities carry a higher risk as well as a higher return. Also like close ended mutual funds, the commodity mutual funds can be traded in low markets. This requires the investor to track commodity shares and take charge of protecting their own investment. It is best to stay out of commodity mutual funds if you are not knowledgeable in commodities, their cycles, their returns, and their risks.